CBDC is not a priority, according to the Central Bank of Kenya
May 23, 2023 7:28 AM
In addition to establishing a CBDC, the bank stated that other actions may be taken to address Kenya's payment challenges.
The Central Bank of Kenya (CBK) has stated that it is not in a rush to implement a central bank digital currency (CBDC) in order to provide a safe and efficient payment system for Kenyans. Instead, the bank stated that the country's payment issues may be remedied by enhancing innovation within the existing payments ecosystem.
The CBK stated in its Bank Supervision Annual Report→ for 2022 that their approach was influenced by the replies it received following the distribution of a discussion paper on CBDC in February 2022.
According to the bank, the majority of respondents thought the CBDC venture was laden with danger.
While the CBK agreed that CBDCs might alleviate inefficiencies in existing payment systems and affect cross-border payments, issues such as the availability of the internet and smartphones could constitute an expensive barrier to the currency's widespread adoption.
Furthermore, the bank emphasized the importance of public knowledge and education about CBDCs and cryptocurrencies, particularly how they differ.
The bank also stated that the eNaira, Africa's first CBDC, has seen poor uptake and has done nothing to improve financial inclusion, a significant problem that the CBDC was supposed to remedy.
In explaining its stance, the bank cited other central banks, such the Bank of Tanzania and the Bank of England, that have taken a cautious approach toward CBDCs.
"the rollout of CBDC should not be a race to be first." CBK's objective is for a payment system that is safe, efficient, and broadly accessible to and useful to Kenyans. Kenya's payment pain points can currently be addressed by strengthening innovations inside the existing payment ecosystem. As a result, establishing a CBDC may not be a top priority in Kenya in the near-medium term."
Concerns about internet and smartphone connectivity may be exaggerated, given that CBDCs can be connected with the USSD protocol that drives mobile money.
Nigeria's central bank collaborated with digital communications service provider Clickatell to develop an eNaira USSD channel last year.
In October 2021, Nigeria will be the first African country to launch its CBDC, the eNaira.
However, following a poor start, the Central Bank of Nigeria announced a 63% rise in transaction volume and a 12-fold increase in the creation of new wallets since last October, according to a Coinnewsafrica story.
Coinnewsafrica previously reported in May that Zimbabwe has launched a gold-backed CBDC to combat inflation and establish an alternative store of value. However, it is too early to predict the new digital currency's adoption rate.
The CBK was one of the first banks to take a position on cryptocurrency, issuing a public notice stating that cryptos are not legal cash in the country. Banks have gone so far as to close bank accounts that connect with peer-to-peer cryptocurrency exchange platforms.
Regardless, crypto use in the country is increasing. According to a survey by the United Nations Conference on Trade and Development (UNCTAD), over 4.25 million Kenyans (8.5% of the population) hold and trade in digital currencies.
Despite the CBK's opposition, the country tabled legislation to tax cryptocurrency exchanges earlier this year.
An amendment to the Capital Markets Bill 2022 attempted to tax crypto service providers in the same way that banks are taxed.
The CBK published a discussion paper on CBDCs in February 2022, exploring the applicability of a potential CBDC in the country as well as evaluating other existing CBDC efforts globally.