The Fed Just Made Money More Expensive for Africa

Good morning ☀️

The Federal Reserve raised its target rate to 3.75%–4.00% yesterday, with its latest projections putting the median rate at 4.1% by year-end. African borrowers returning to dollar markets now do so with U.S. rates higher.

BRICS members are working to expand the use of national currencies in trade. Within Africa, PAPSS already allows cross-border payments to settle in local currencies and now operates across 18 countries.

These changes do not remove Africa’s exposure to U.S. interest rates. Governments still borrow internationally, companies still seek foreign capital and much of the continent’s commodity trade remains tied to global markets.

African governments still need international financing for budgets, debt refinancing and investment. The latest Fed increase means new dollar borrowing now takes place with U.S. rates at 3.75%–4.00%. Existing fixed-rate debt is unchanged, but governments issuing new bonds or refinancing maturing obligations face the higher rates now prevailing in the market.

There is little indication of an immediate reversal. The Fed’s September projections put U.S. inflation at 3.7% in 2026, with the median federal funds rate reaching 4.1% by year-end.

For African borrowers, the next financing decisions will be made with U.S. rates still elevated and another increase contained in the Fed’s median projection.

→ Read: Fed Rate Hike Tightens the Squeeze on African Businesses, Banks and Dollar Debt

African commodity exporters remain heavily exposed to the dollar when selling abroad. BRICS is working on wider use of national currencies between member countries, including payment arrangements that could allow more transactions to settle without first converting into dollars.

Direct settlement would reduce the dollars needed to complete qualifying trades between participating countries. Much of the world’s commodity pricing would remain dollar-based, leaving African exporters exposed to the U.S. currency beyond the payment itself.

BRICS has not completed that shift. The bloc is building the framework for more of it.

That last line is deliberately plain rather than clever. It prevents readers from leaving the newsletter with the impression that BRICS has already delivered the change your underlying article is examining.

→ Read: BRICS Currency Push Cuts Dollar Dependence for African Commodity Exporters

PAPSS allows participating businesses to settle cross-border payments in local currencies, with transactions processed within 120 seconds, according to the payment system. This removes some of the hard-currency conversion required when payments are routed through the network.

The Bank of Central African States joined PAPSS in July, adding the six CEMAC economies to its growing reach.

Moving goods across African borders remains more difficult. National customs barriers continue to slow AfCFTA implementation and the movement of goods between African markets.

→ Read: PAPSS Exposes Broken AfCFTA Border Integration as IMF Warns Implementation Still Lags

African governments still borrow in dollars, and the currency remains widely used in the continent’s international trade. The latest Fed increase has raised U.S. rates while that dependence remains.

BRICS members are working on arrangements for more trade to be settled in national currencies. PAPSS already allows participating businesses in Africa to make some cross-border payments in local currencies.

Dollar financing and dollar-priced commodity markets remain part of Africa’s exposure. Some cross-border payments no longer require the dollar for settlement.