The Liquidity Mirage of Traditional Banking
For decades, the financial narrative in Africa was a story of systemic friction. Moving money from Lagos to Nairobi required a three-day detour through New York or London, with correspondent banks skimming up to 30 percent in fees. As of December 04, 2025, that colonial-era plumbing is finally being dismantled. The vagueness of the early 2020s has been replaced by a hard, data-driven reality: local settlement systems are no longer a luxury but a survival mechanism for a continent that has effectively decoupled from its reliance on foreign exchange reserves for intra-regional trade.
The correspondent banking system is currently undergoing a terminal liquidity crisis. According to data from the Central Bank of Kenya, the Kenyan Shilling closed today at 129.41 per U.S. dollar, maintaining a level of stability that was unthinkable during the volatility of 2023. This stability is not a fluke. It is the result of a coordinated shift toward the Pan-African Payment and Settlement System (PAPSS), which has now onboarded 19 countries and over 150 commercial banks as of late 2025. The mechanism is simple but revolutionary. Instead of converting Naira to Dollars and then Dollars to Shillings, banks are now using a centralized Financial Market Infrastructure (FMI) that connects the real-time gross settlement (RTGS) systems of participating central banks directly. This eliminates the need for hard currency in the middle of the transaction.
The Pan-African Payment Breakthrough
The technical architecture behind this shift relies on a daily netting process. When a business in Ghana pays a supplier in Zambia, the transaction is validated in seconds, not days. The PAPSS African Currency Marketplace (PACM), which launched its blockchain-integrated order book in July 2025, allows for direct swaps between local currencies without ever touching a third-party intermediary. This infrastructure is projected to save African businesses more than 5 billion dollars annually in transaction costs that were previously lost to offshore institutions.
We are seeing a massive shift in how capital is deployed. In the first 48 hours of December 2025, institutional reports confirmed that intra-African trade volumes have surged past 200 billion dollars. This growth is underpinned by the new PAPSSCARD scheme, which launched earlier this year to challenge the dominance of global card networks. By providing a continental card rail, African banks are keeping transaction metadata and processing fees within their own borders.
Nigeria’s Decelerating Inflation and the Pump Price Pivot
While Kenya has focused on currency stability, Nigeria is navigating a different set of metrics. A fresh report released this morning by United Capital Plc analysts forecasts that Nigeria’s headline inflation rate will drop to 15.48 percent for November 2025. This is a staggering decline from the 34.8 percent peak recorded in late 2024. The mechanism driving this disinflation is not just monetary tightening, but a significant reduction in energy costs. Retail pump prices for fuel have moderated to approximately 900 Naira per liter as of this week, down from over 1,000 Naira earlier in the year, following production ramp-ups at the Dangote Refinery.
This drop in energy costs has a direct ripple effect on the logistics and food service sectors. For investors, the takeaway is clear: the “Nigeria is a basket case” narrative of 2024 is dead. The current environment is one of aggressive disinflation, which will likely force the Central Bank of Nigeria (CBN) to consider easing its current 27.50 percent monetary policy rate in the coming weeks. The high-yield environment that dominated the last 18 months is nearing its end, and the market is shifting toward equity growth in the consumer goods and manufacturing sectors.
Stablecoins as the Shadow Reserve
Traditional banking is not just being threatened by government-led systems like PAPSS. It is being cannibalized by stablecoins. As of December 2025, stablecoin payment volumes in Africa have reached an annualized rate of over 10 billion dollars. Fintechs like RedotPay have surpassed 6 million users by offering what banks cannot: instant, borderless settlement using USDT and USDC. These are no longer speculative assets for retail traders. They are the primary B2B settlement tool for small and medium enterprises (SMEs) in Lagos and Accra who need to pay suppliers in China or Turkey without waiting for an official FX allocation.
This shadow reserve system has forced central banks to accelerate their own digital offerings. However, unlike the failed experiments with retail CBDCs in previous years, the focus in late 2025 has shifted to wholesale digital tokens that facilitate bank-to-bank settlement. The result is a hybrid financial ecosystem where the formal banking sector provides the regulatory oversight while the fintech rails provide the actual liquidity.
The Capital Comeback
After a two-year venture capital winter, the African tech ecosystem has pulled in over 3 billion dollars in 2025. This represents a 36 percent jump from the 2024 lows. But the character of this capital has changed. The era of the nine-figure equity round for a company with no revenue is over. In the current market, 35 percent of tech investment in Nigeria is focused on infrastructure and merchant services rather than simple consumer wallets. Investors are now looking for “path-to-profitability” metrics, and the successful IPOs of two major fintechs in November 2025 have finally proven that there is an exit path for African tech at scale.
The next major milestone to watch occurs in early 2026. The Central Bank of Kenya is scheduled to fully operationalize its Risk-Based Credit Pricing (RBCP) model by March, a move that is expected to finally unlock commercial lending to the private sector by ending the era of blanket interest rates. This will be the definitive test for the 9.25 percent policy rate and will determine if the current stability can be converted into long-term industrial growth. Watch for the February 2026 PMI data out of Nairobi for the first signal of this credit expansion.
