{"id":3059,"date":"2022-02-16T11:35:46","date_gmt":"2022-02-16T10:35:46","guid":{"rendered":"https:\/\/ancstockinvestments.com\/blog\/?p=3059"},"modified":"2022-02-16T11:35:48","modified_gmt":"2022-02-16T10:35:48","slug":"kenya-is-considering-using-a-cbdc","status":"publish","type":"post","link":"https:\/\/ancstockinvestments.com\/blog\/2022\/02\/16\/kenya-is-considering-using-a-cbdc\/","title":{"rendered":"Kenya is Considering Using a CBDC"},"content":{"rendered":"\n
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The Central Bank of Kenya (CBK) has issued a discussion paper assessing the applicability of a central bank digital currency (CBDC) in the country and seeking comment from the public on the technology. The move indicates that the country is considering adopting the technology but also raises questions on the effectiveness of having a CBDC in a country with a real-time payment system such as mobile money.<\/p>\n

\u201cGiven the dominance of M-Pesa in the country, I think the key question is: What can a CBDC do that M-Pesa cannot?\u201d Co-Pierre Georg<\/a>, an associate professor at the University of Cape Town who researches CBDCs, tells Quartz.<\/p>\n

As a global pioneer in mobile money with the M-Pesa wallet, Kenya has a huge and robust digital money market. The country had 68.03 million mobile money accounts as at Dec. 2021, mostly in M-Pesa.<\/p>\n

The paper, released on Feb. 10, outlines the evolution of payments in Kenya and globally<\/a> (pdf) and discusses new digital payment methods including electronic money, CBDCs, stablecoins, and other digital currencies.<\/p>\n

\u201cCBK has been closely monitoring these developments globally\u201d the bank says<\/a> in a press release.<\/p>\n

What is a central bank digital currency?<\/h2>\n

A CBDC is a digital or virtual format of a country or region\u2019s base currency. It is regulated by a central bank. As the world continues to accept digital payments, cryptocurrencies, and stablecoins, central banks globally are looking to adopt CBDCs.<\/p>\n

In Africa<\/a>, the technology could help reduce transaction costs<\/a> in the continent\u2019s huge remittance market \u2014 many Africans have embraced cryptocurrencies\u00a0to cushion themselves from high transfer fees<\/a>.<\/p>\n

Nevertheless, generally, there are questions about CBDCs\u00a0accessibility, privacy, and the model to use<\/a>\u00a0in their adoption.<\/p>\n

CBDC versus cryptocurrency<\/h2>\n

Just like a cryptocurrency, a CBDC is a digital token. But while cryptocurrencies are stored on a decentralized blockchain network, a CBDC is issued and stored using a more centralized method.<\/p>\n

Kenya is a world leader in mobile money<\/h2>\n

With Kenya already having set itself aside from the pack as a global leader in mobile money, the question on additionality of CBDCs is an important one.<\/p>\n

According to Georg, who is also the research chair in financial stability studies at South Africa\u2019s central bank, a CBDC has several advantages over M-Pesa. One is that allows the creation of \u201csmart money\u201d, for example \u201csmart contracts\u201d that can be used to create escrow contracts or rotating savings schemes. Another advantage, he adds, is that a CBDC can act as a bridge between traditional finance and all the new decentralized finance projects.<\/p>\n

The Central Bank of Kenya sees opportunities and risks in a CBDC<\/h2>\n

The discussion paper by Kenya\u2019s central bank says a CBDC in the country wouldn\u2019t focus on enhancing access to financial services considering the high penetration of mobile money in the country. Instead, it would target cost reduction for transactions, payment interoperability between merchants and agents, and improving the efficiency\u2014speed and cost\u2014of cross-border payments.<\/p>\n

Some of the opportunities the CBK sees in a CBDC include enhanced cross-border payments, whereby a CBDC could facilitate enhanced cross-border payments through regional and global integration and cooperation; and promotion of innovation, where\u00a0an open CBDC platform could allow companies to innovate around CBDC-related payment services and also be able to re-innovate the payment services they provide to consumers.<\/p>\n

One of the risks, on the other hand, is reduction in the use of banks in their role as intermediaries,\u00a0because if significant deposit balances are moved from bank deposits to a CBDC, banks\u2019 ability for credit creation could get constrained. Another risk is in tech, such as\u00a0cyberattacks on CBDC infrastructure.<\/p>\n

Many African countries are exploring CBDCs<\/h2>\n

Kenya is one of about a dozen<\/a> African countries that are exploring CBDCs, according to a tracker by the Atlantic Council think tank. The number is increasing. On Feb. 9, Zambia said it anticipates to complete by the end of this year research to create a CBDC. Nigeria<\/a> is the only African country that has launched a CBDC, which it calls the e-Naira<\/a>.<\/p>\n

Sign up to <\/em>the Quartz Africa Weekly Brief here<\/em><\/a> for news and analysis on African business, tech, and innovation in your inbox.<\/em><\/strong><\/p>\n<\/div>\n