Africa says it wants financial sovereignty. Its reserves tell a different story. As much as 70% of foreign exchange reserves sit in Western financial centres, supporting the US, the UK and France’s economies rather than Africa’s development.
By Jean-Pierre Godeme, Chairman & CEO, MADU
African states hold around $450bn in foreign exchange reserves.
Much of this national wealth – nearly equivalent to the combined GDP of Morocco, Kenya and Angola – flows disproportionately to US and European governments in sovereign bonds, to the Swiss-based Bank for International Settlements (BIS) or large American or European commercial banks.
Some African central banks place 80% or more of their nation’s FX reserves in US or European bond markets, leaving African states propping up American and European economies rather than their own.
President Trump champions “America First” – and Africa’s reserve allocation strategies hum the same tune.
If African nations wish to accelerate financial sovereignty, they should invest at least a greater proportion of their foreign exchange reserves in well-capitalised domestic and regional banks.
This would allow Africa’s commercial banks to drive development at home, and at scale.
Why central banks hold FX reserves ?
Most African countries are net importers and need foreign exchange to pay for essential imports such as fuel and food; to service external debt; and to help keep local currencies stable.
Security and liquidity of this FX capital is more far more important than the returns it may generate.
Though the overwhelming majority of Africa’s FX reserves are overseas, some jurisdictions have trusted domestic and regional banks.
In 2006, the Central Bank of Nigeria placed $7bn of its FX reserves (around 18% of the country’s total) with 14 domestic banks, but the policy was rolled back in the last several years.
BCEAO, the central bank for eight mainly French-speaking West African countries including Senegal, entrusts 20% of its member states’ collective FX reserves to regional commercial banks, a higher share than many other central banks.
However, most African foreign exchange reserves go to overseas sovereign and commercial institutions with top-grade credit ratings, such as J.P. Morgan; Black Rock; Société Générale; Bank of England, Bank of France, and the U.S. government in Treasury bills and bonds.
No western nation would contemplate holding its foreign exchange reserves in African financial institutions. Yet African central banks routinely entrust the majority of their national wealth to western economies effectively subsidizing their financial systems while starving their own.
This is a policy choice, not a law of nature, and one that African policymakers have power to reverse. Other emerging powers have made this shift. In 2015, China took $62bn from its foreign exchange reserves and used it to strengthen two of its own development banks; the China Development bank and the Export-Import Bank of China. Rather than leaving that capital sitting in US Treasury bonds, China put it to work financing infrastructure and trade across Asia, Africa and Latin America.
Designing products for the gold rush
African commercial banks may also look to expand their gold-linked financial instruments as governments worldwide are holding more of their reserves in gold. Tanzania for instance holds $2bn with the Bank of England that its Deputy central bank governor says is earning zero.
Credit rating dilemma
The minimum investment criteria used by African central banks has been modelled on European norms.
African centrals banks typically require a country or commercial bank to have a single to triple A credit rating from international agencies, such as Moody’s S&P and Fitch. Only then are the investible instruments of these institutions considered “investment grade” for FX reserves.
Even Africa’s strongest banks – Ecobank (B-; Fitch); First Bank of Nigeria (B rating from Fitch), Standard Bank (BB-; Fitch) or DRC’s safest bank Rawbank (B3; Moody’s) – do not meet these standards.
The continent’s largest economies themselves fall short: Egypt (B), Nigeria (B), South Africa (BB).
Reform the investment criteria
African central banks should rethink these rules and adapt investment criteria to serve continental development.
Issuances from the African Development Bank (AfDB) – rated AAA by Fitch – are currently one of the few African financial industry assets that meet central bank investment rules.
A pragmatic first step would be to accept assets rated BBB. This would enable more African-headquartered development banks such as BOAD (BBB; Fitch) to be beneficiaries of more sovereign FX assets. But even this lower criterion would still exclude every single African commercial bank.
A deeper overhaul is needed. Africa’s central banks must conduct a structured review of their investment criteria and define what governance it would take for robust African banks to safely hold a larger share of FX reserves.
Consultation with the global gatekeepers: the IMF and credit rating agencies
Any attempt to onshore reserves must include consultation and endorsement from global rating agencies and the IMF, or the move risks punitive consequences.
Speakers at Africa Financial Summit – AFIS 2025 – including the governors of the BCEAO, Central Bank of Madagascar and the Deputy Governor of Tanzania – expressed openness to entrust more to African commercial banks. But they fear it will lead their country (or countries in their region) to be downgraded by international credit rating agencies.
The IMF may also take a negative view. In the 2010s, Democratic Republic of the Congo held part of its FX reserves in domestic banks. But when the DRC secured its 2019 IMF credit facility, the IMF made clear that reserves in local banks wouldn’t count toward total reserves – forcing most of those FX funds in local banks to move to the BIS.
The goal is not to ditch safe, top-rated Western sovereign assets and risk diplomatic fallout. It’s simply to steer a larger share toward African commercial banks, building a diversified portfolio that no longer sidelines the continent’s own financial industry.
Turning reserves into roads and energy infrastructure
epatriating more reserves to African banks would give them the balance-sheet depth to address the continent’s $50bn to $90bn financing gap for its annual infrastructure needs. The added FX liquidity could also reduce their reliance on international correspondent banks for hard currency.
African commercial banks rely heavily on current accounts and other short-term deposits, forcing them to keep enough cash available to meet withdrawals. This currently limits their capacity to finance the long-tenor, infrastructure projects Africa needs.
Many such projects are therefore financed by foreign direct investment, which can include preferences for contractors from the investor’s home nation.
Revising the FX reserve allocation would also ease foreign currency access for domestic commercial banks. Today, African banks seeking hard-currency financing are sent back to the same global correspondent banks that also hold the continent’s reserves.
It’s an unnecessary loop that African policymakers should break.
Though pan-African banks do not have single A credit ratings, the continent’s top 100 banks grew assets nearly double the rate of the top 1,000 banks globally, according to The Banker’s 2025 analysis. And many tier one African banks have expanded international footprints to add offices in Paris, London and Dubai in the last decade.
Making Africa’s national wealth work for Africa
The good news is that some central banks present at AFIS 2025 – BCEAO, Madagascar and Tanzania – largely agree that they could place more reserves with domestic and regional and regional banks. The shift is likely to happen.
Africa’s wealth should work for Africa.
If African governments want stronger local banks, deeper regional markets, and greater control over their economic future, then more of their reserves should circulate where their ambitions live – within Africa.
Signed by
Jean Pierre Godeme
Chairman & CEO, MADU
