Barbados, Bahamas ‘first’ in new cross-border transaction system
By Emmanuel Joseph
in Georgetown, Guyana
A new currency conversion trading arrangement that promises to save millions of dollars of foreign exchange in settling cross-border payments is set to involve the Central Bank of Barbados.
Central banks in the Caribbean Community (CARICOM) are this week mulling a new arrangement under the Pan African Payment and Settlement System (PAPSS) for trade within CARICOM and with Africa, supported by the African Export-Import Bank (Afreximbank).
Barbados has been joined by the Bahamas in a pilot programme where buying and selling among Caribbean states and with African nations can be done in each country’s currency without having to convert to the US dollar or other major foreign currencies.
The brainchild of the 30-year-old Afreximbank, PAPPS is a cross-border, financial market infrastructure enabling payment transactions across Africa.
The bank is pushing a Caribbean version of PAPPS to enable cross-border financial transactions in real-time and in local currency as well as coordinate end-of-the-day net settlement with the participating central banks.
Appearing on a panel discussion with his Guyanese counterpart, merchant bankers and officials at the AfriCaribbean Trade and Investment Forum, Central Bank Governor Dr Kevin Greenidge said the Caribbean was on its way to making the new system work as a standard.
The region’s central banks are to gather in Jamaica this week to examine the payment system.
Dr Greenidge said: “We are on our way to doing [cross-border trading in local currency]. I think it is a necessary part of the integration process. It is already happening among the African countries via the Pan African Payment and Settlement System. To have that between the Caribbean and the African continent, that currency conversion mechanism is what we have agreed at the level of the governors in principle, that we will look to adopt this payment system which allows, in the first stage, us in the Caribbean to buy and sell goods and services using our own local currency if we adopt the system.
“That, in of itself, not only promotes growth in terms of trade and investment facilitation, it also eliminates transaction costs, since it is a settlement in debt position, it saves us some foreign currency, it promotes financial inclusion; we don’t have to source US dollars when trading between Guyana, for example, and Barbados.
“Now we are looking to start a pilot programme, Barbados and Bahamas, and we are looking for a third central bank in the region to come in with us because we have to iron out the kinks to see how it works. We have a meeting in early November to probably discuss it in Jamaica this week on how to move forward. Once we have that working in the region, and it will facilitate growth and development, then the next step will be how to make it work across our continent,” the central bank governor said.
He explained that there would be a need for functional cooperation among the central banks in Africa and the Caribbean in standardising regulations and removing any regulatory barriers.
Dr Greenidge pointed out that some CARICOM states already have these relationships, but the idea is to broaden them
“Once it is up and running, it’s just a go from there,” he said. “We need, of course, some trade agreements, and Afreximbank in the Caribbean [based] in Barbados is part of that process for facilitating. We need some financing facilities. The agreement that was signed last year early to pave the way for Afreximbank to be part of Barbados was a framework agreement.”
He also said work would have to be done on credit facilities and guarantee facilities through discussions with Afreximbank which would assist with trade facilitation.
“We are on our way, but we have to work it out, and in my view, it’s going to be a two-phased [process]. It’s the future, so there is where we have to go,” the central banker suggested.