Caribbean central banks testing payment system to reduce reliance on US banks
Four Caribbean central banks are launching a pilot project to develop an alternative payment system, aiming to reduce reliance on the US dollar for trade and remittances.
Spearheaded by the Eastern Caribbean Central Bank (ECCB), the initiative seeks to transform cross-border payments and will eventually link to Africa’s system, which was established three years ago.
The pilot for the Caricom Payment and Settlement System (CAPSS) will initially include Barbados, The Bahamas, ECCB member states, and one additional country to be confirmed. ECCB Governor Timothy Antoine announced this at the Africaribbean Trade and Investment Forum held in Grenada last week.
“I’ll allow the other country to confirm when it is ready to do so,” said Antoine. “Once we complete the pilot, we’ll look at scaling it up,” he added.
CAPSS is designed as a real-time, low-cost cross-border payment system operating in local currencies.
It mirrors the Pan-African Payment and Settlement System (PAPSS), a centralised financial infrastructure developed by Afreximbank and the African Union to enable secure, real-time cross-border payments in local currencies across Africa. Launched in 2022, PAPSS connects central banks, commercial banks, and payment service providers to streamline transactions and reduce reliance on foreign currencies.
The countries currently involved in PAPSS include Nigeria, Ghana, Liberia, The Gambia, Guinea, Sierra Leone, Kenya, Zimbabwe, Zambia, Djibouti, Tunisia, Egypt, Comoros, Malawi, Algeria, and Rwanda. The platform has now been adopted by Caricom.
The goal is to facilitate trade and remittances within the region using local currencies, bypassing costly and often unreliable correspondent banks in the United States.
“We cannot continue to rely on correspondent banks, particularly those from the US,” Antoine noted.
Using CAPSS, transactions – for example, from Grenada to Guyana – can be settled in Eastern Caribbean and Guyanese dollars, respectively, with central banks and the African Export-Import Bank acting as settlement agents.
“In day-to-day transactions, traders will be trading in local currencies. That, we believe, is a potential breakthrough,” Antoine said.
Phase two will expand the system to African countries, enabling direct currency exchanges between Caricom and Africa. “Charity begins at home – phase one. Then, in phase two, we pivot to the motherland,” he added.
The pilot builds on a successful proof-of-concept earlier this year between the Central Bank of Barbados and the Central Bank of The Bahamas. The ECCB is now collaborating with the Committee of Central Bank Governors to scale the initiative across the region – and eventually beyond.
“This is a concrete example of leveraging our shared pain for shared prosperity,” said Antoine, while thanking Afreximbank for its leadership in laying the foundation for CAPSS.
“I want to be clear: while background settlements will still involve US dollars between central banks, the day-to-day transactions will use local currencies – a key innovation with broad potential,” Antoine emphasised.
