Kenya is considering embracing digital currency technology. However, the country is casting doubt on the effectiveness of having a digital currency while having a real-time payment network such as Mobile money. To maintain the project, the Central Bank of Kenya (CBK) has given out a discussion paper to evaluate the applicability of the Central Bank digital currency (CBDC) in the country and hunt for the public’s point of view on the technology.
Speaking on the matter, Co-Pierre Georg, an associate professor at the University of Cape Town who researches CBDCs, tells Quartz, “Given the dominance of M-Pesa in the country, I think the key question is: what can CBDC do that M-Pesa cannot?”
Kenya has a massive and robust virtual money market. The country is a global pioneer in mobile money with the M-Pesa wallet. As of December 2021, the country had whooping 68.03 million mobile money accounts, primarily in M-Pesa.
On Feb 10th, The Central Bank of Kenya released an outlining paper evolution of payments in Kenya and globally and discussed new digital payment methods, including CBDCs, electronic money, stablecoins and other virtual currencies. The financial entity said that it closely monitored digital currency developments globally in a press release.
A Summary of Central Bank Digital Currency
It is a virtual or digital system of a country’s or region’s base currency regulated by the central bank. Globally, central banks consider adopting CBDC as the world accepts cryptocurrencies, digital payments and stable coins.
In Africa, digital currency technology can help reduce transaction costs in the large market remittance in the continent. Many Africans have adopted crypto to stifle themselves from high transfer charges. However, there are questions concerning CBDCs privacy, accessibility, and the model to use in their adoption.
CBDC Vs Cryptocurrency
Similarly to cryptocurrency, CBDC is also a digital token. A Central Bank Virtual Currency is issued and stored using a more centralized method, while cryptocurrency is stored on a decentralized blockchain network.
Kenya Is Globally Leading In Mobile Money
Kenya has already set itself aside from the pack as a world leader in mobile money; thus, it is essential to query the addition of CBDCs.
According to Georg, a research chair in financial stability studies at South Africa’s Central Bank, a CBDC has several benefits over M-Pesa. One advantage is that CBDC allows the creation of “smart money”, for instance, “smart contracts” that can be used to create rotating savings schemes or escrow contracts. Another advantage that Georg adds is that a CBDC can act as a medium between traditional finance and all the novel decentralized projects.
The Central Bank of Kenya Senses Opportunities and Risks in A CBDC
The discussion paper by CBK says that a CBDC would target cost reduction of transactions, improve the efficiency of, cost and speed, of cross-border payments and payment interoperability between agents and merchants in the country. However, it would not enhance access to financial services considering Kenya’s high mobile money penetration.
CBK sees opportunities in a CBDC such as promotion of innovation, where an open CBDC could allow companies to innovate around CBDC related payment services and also be able to re-innovate the payment services they provide to consumers. Additionally, CBDC could enhance cross border payments through regional and global integration and cooperation.
In contrast, some risks include cyber-attacks on CBDC infrastructure and reduced use of banks as intermediaries. Banks credit creation could get constrained if huge deposit balances are moved from bank deposits to a Central Bank Digital Currency.
African Countries Are Considering Adopting Their Digital Currencies
According to the Atlantic Council, think tank tracker, Kenya is among the top African countries exploring Central Bank Digital Currencies. The number is rising with Zambia on Feb 9th, saying that it anticipates finishing research to develop its virtual currency by the end of this year. Nigeria is the only country that has launched a CBDC, known as e-naira.