The Reality of African FX Markets: Liquidity, Capital Controls & the Parallel Economy
African FX liquidity is shaped by hard-currency scarcity and capital controls. Roland Schilling, COO at Sika Financial, explains how interbank reference rates differ from parallel markets, and how Sika settles via CCP/PvP.
African FX markets are often viewed through the lens of developed-market trading — with published interbank rates and central bank reference prices suggesting accessible liquidity. In practice, execution conditions are very different.
LiquidityFinder spoke with Roland Schilling, Chief Commercial Officer at Sika Financial to understand more about the scarcity of hard-currency capital controls and parallel markets in Africa and how these and other factors shape African FX markets — and how Sika’s market infrastructure model is designed to operate within these realities rather than against them.
Where do African FX “market rates” actually come from?
LiquidityFinder: When market participants look at African currencies — such as the Kenyan shilling, Ghanaian cedi or Ugandan shilling — they often assume published rates reflect where meaningful business can be done. Is that accurate?
Roland Schilling: Not really. What most participants see are administered interbank markets.
Central banks publish daily reference rates, often via platforms such as Bloomberg, and local banks trade around those levels. However, these markets are not free-floating in the same way as G7 FX. Rates move, but typically under central bank guidance and often with a delay.
As a result, published rates function primarily as reference prices, not a guarantee of executable liquidity at scale.
Why hard-currency liquidity is the binding constraint
LiquidityFinder: If reference rates exist, why is execution so difficult?
Roland Schilling: Because the real constraint is not pricing — it’s access to hard currency.
Across many African markets, demand for dollars and euros significantly exceeds supply. Capital controls restrict how much foreign currency can be purchased or repatriated, often requiring individual transaction approvals.
Even where approvals are granted, banks frequently do not have sufficient hard-currency liquidity available. Limited allocations are common — not due to credit risk, but because liquidity simply does not exist locally.
Why parallel markets exist — and why they matter
LiquidityFinder: Is this why parallel FX markets play such a central role?
Roland Schilling: Exactly. Parallel markets exist because they reflect actual supply and demand.
Corporates often rely on alternative, well-understood market mechanisms that operate alongside formal frameworks, reflecting where transactions can clear in practice.
In high-inflation environments, holding local currency while waiting months for approvals can materially erode value. Parallel markets therefore become the primary mechanism for execution and real price discovery.
How Sika operates within local monetary frameworks
LiquidityFinder: How does Sika operate in these environments without disrupting local economies?
Roland Schilling: Sika does not move currency out of the country.
The platform is designed around a central counterparty model with payment-versus-payment settlement where supported by local rails and approvals.
Local currency remains domestic at all times. Sika does not inject new liquidity or draw on foreign-exchange reserves. Its role is to match existing flows more efficiently, without placing pressure on exchange-rate policy or reserve management.
Why matching currencies — not trades — changes the liquidity equation
LiquidityFinder: Why is matching currencies rather than trades so important?
Roland Schilling: Most FX systems attempt to match full bilateral trades — currency A against currency B. In fragmented markets, that approach quickly runs into limits.
Sika matches currency legs independently, applying multilateral netting and triangulation across corridors.
Net positions generated in one corridor can reduce settlement pressure in another, improving overall liquidity efficiency without moving currency across borders.
Why stablecoins have not solved African FX
LiquidityFinder: Have stablecoins such as USDT solved these challenges?
Roland Schilling: They help at the margin, particularly for hedging, but they don’t solve the underlying structural issues.
On- and off-ramps remain constrained, capital controls re-emerge when funds touch the banking system, and retail P2P crypto markets do not scale to institutional flows.
Central bank engagement with market infrastructure
LiquidityFinder: How do central banks typically engage with infrastructure models like Sika’s today?
Roland Schilling: Engagement is largely at a framework and approval level rather than operational involvement.
In many African markets, CCP-specific frameworks are still evolving, particularly outside South Africa.
Sika therefore operates with the necessary approvals or non-objection letters, directly or via partners, while respecting local monetary and settlement frameworks.
Why this matters for market participants
- African FX is not primarily a pricing issue.
- It is a liquidity, settlement and market-structure challenge.
- Bilateral execution models do not scale in fragmented corridors.
- Multilateral netting and PvP settlement are key to efficiency.
- Published “headline rates” rarely reflect executable reality at scale.
Editorial note: This insight forms part of LiquidityFinder’s ongoing coverage of market structure, liquidity and execution realities across emerging and frontier FX markets.