The ability to send money instantly to any recipient with a phone number in Southern Africa is seen by regional regulatory authorities, including South Africa’s Reserve Bank, as a key driver of economic growth and financial inclusion, and an important step towards decreasing the region’s reliance on cash for remittances.

But sending money across borders within the Southern African Development Community (Sadc) – a regional block comprising 16 countries – comes with complexities, including differences in financial regulations between jurisdictions as well as the problem of how to deal with exchange rates.

According to Tim Masela, head of the National Payments System department at the Reserve Bank, regulatory alignment across the region is at a mature level, with contractual agreements in place to ensure that integration between the financial systems of different countries is seamless and effective. However, the exchange rate problem is yet to be solved satisfactorily.

“If I buy goods from Zambia, I expect to get a Zambian kwacha invoice, but my money is in rands,” Masela said in a recent exclusive interview with the TechCentral Show.

“Some Sadc currencies are not well-traded, such that you have direct exchange rates and that brings complications because you don’t know what the exchange rate is between the kwacha and the rand, for example.”

Masela said the US dollar’s dominance in world trade means that there is a rand/dollar exchange rate and another between the kwacha and the dollar. This makes it possible to use dollar conversions as an intermediate step when converting from one Southern African currency to another, but this is not desirable because each time a conversion is made, there is a cost involved, making the transaction more expensive than it needs to be.

“In these conversions there are spreads, or profits, and they are doubled because the conversion uses this third currency as a reference. The loser, ultimately, is the payer because they must pay the invoice amount over and above the cost of the transaction,” said Masela.

Not unique

He said this problem is not unique to the Sadc region and affects all countries whose currencies have low trade volumes compared to others such as the dollar, the euro or pound. Quoting regional trade statistics, he said the rand and Botswana’s pula are the most traded currencies in Sadc. Even so, the US dollar still accounts for some 60% of trade in the region “even when we are paying ourselves”, he said. The rand accounts for a further 35%.

“It means we don’t trust our own currencies; we pay each other in US dollars,” said Masela.

Dollar-based payments make sense when trading in commodities such as gold or oil since these are priced in dollars, but doing so when making relatively small cross-border payments is not smart, said Masela.

Read: Reserve Bank to open national payments system to fintechs

Finding alternatives to using the dollar as a reference currency when converting between regional tender is part of the challenge faced by the Reserve Bank and its Sadc counterparts in the ongoing implementation of BankservAfrica’s Transactions Cleared on an Immediate Basis (TCIB) platform. TCIB allows banks and non-bank fintechs to use BankservAfrica infrastructure to facilitate PayShap-style instant payments across borders.

Masela said the remittance use case was the first and most important to solve using TCIB because “countries around us rely on remittances for people’s livelihoods”. The facilitation of payments between small and medium businesses that trade across borders is another reason why TCIB exists. Much of these payments occur in cash that is sent across borders using an informal courier system that employs bus and delivery-van drivers. This system is expensive, inefficient and dangerous. TCIB, on the other hand, has the ability to clear payments from bank to bank, wallet to wallet, wallet to bank and bank to wallet in about 60 seconds.

“There could be accidents, robberies or other reasons why the money will not reach its intended destination – but people leverage that in the absence of alternatives. We believe we need to give people convenient means. This money must move as efficiently as possible and they need to get it as immediately as possible because people need it for their daily basic needs,” said Masela. – © 2024 NewsCentral Media

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