The Central Bank of Kenya (CBK) is now considering creating a digital currency that anchors cross-border transactions.
The country’s apex bank yesterday said it is examining the possibility of creating a central bank digital currency (CBDC) in response to accelerated adoption of various digital payments in the country.
Through a statement, CBK stated that there has been an evolution of payments globally, which include electronic money, stable coins and other cryptocurrencies, hence the need to assess the practicability of CBDC in Kenya.
“Cross-border payments have technologically evolved more slowly than domestic transactions. Currently, international currency transactions are expensive and individuals are charged high fees to move funds from one country to another, especially when it involves currency conversions,” the CBK noted.
“New digital payment methods have emerged to facilitate transactions, including CBDC issued by central banks to serve as money in digital forms. Naturally, the balance of risks and benefits of CBDC will vary from one economy to another,” CBK added.
The CBK does not see a use case for a digital currency locally given the high penetration of mobile-money solutions which are already serving the role a CBDC could play in the future.
In seeking to introduce the currency, Kenya’s apex bank is following in the footsteps of other countries in Africa.
Kenya is ranked third in financial inclusion after Mongolia and China among emerging markets and developing economies with 70 per cent of adults having a mobile money account.
As of March 2021, mobile transactions were 79.6 per cent of total transactions as per CBK data buoyed in part by the rise of cashless transactions at the onset of the COVID-19 pandemic.
“Mobile money addressed the challenge of individuals transferring money to family members, primarily from the urban areas to their loved ones in the rural areas. Its applicability was further affirmed by the fact mobile money enabled convenience, facilitated faster settlement, enhanced securities of transfers and was affordable,” added the CBK.
On the flipside, cross-border payments in the region under the East Africa Payment System (EAPS) has experienced difficulties including the unavailability of partner countries’ currencies in the local market.
To come in as a solution, however, the CBK observes that participating countries would all be required to have operational digital currencies.
The CBK released a discussion paper that will serve as the basis of what is expected to be a heated and landmark debate at the heart of the central bank in coming months.
The discussion paper cites stability and resilience, consumer protection and financial inclusion as opportunities for a CBDC rollout but makes note of risks including the dis-intermediation of the banking sector role, infrastructure costs and cybersecurity risks.
