South Africa and Ghana have launched pilot phases to introduce Central Bank Digital Currencies (CBDC), while several other sub-Saharan countries are following suit with CBDC research, the International Monetary Fund (IMF) has reported.
These include Uganda, Kenya, Rwanda, Tanzania, Zambia, Zimbabwe and Mauritius.
The groundswell of cyber currency development across Africa comes as Nigeria became the second country in the world, after the Bahamas, to launch a digital version of cash that is more secure and less volatile than crypto assets.
According to the IMF, “the South African Reserve Bank is experimenting with a wholesale CBDC, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha.
“South Africa is also participating in a cross-border pilot with the central banks of Australia, Malaysia and Singapore.”
As for Ghana, its central bank “is testing a general-purpose or retail CBDC, the e-Cedi, which can be used by anyone with either a digital wallet app or a contactless smart card that can be used offline.”
The IMF emphasised that countries had different motives for issuing CBDCs, with an array of potentially important benefits to be had across the sub-Saharan region – the most expensive region to send and receive money, with an average cost of just under 8% of the transfer amount.
“The first is promoting financial inclusion. CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use.
“In remote areas without internet access, digital transactions can be made at little or no cost using simple feature phones. CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster.”
Digital currencies can also facilitate cross-border transfers and payments, the IMF said.
“CBDCs could make sending remittances easier, faster, and cheaper by shortening payment chains and creating more competition among service providers. Faster clearance of cross-border payments would help boost trade within the region and with the rest of the world.
“There are risks and challenges that need to be considered before issuing a CBDC, however. governments will need to improve access to digital infrastructure such as a phone or internet connectivity. While the region has made significant strides, more investment is needed.”
There is a lot at stake though before CBDCs can be introduced.
“Central banks will need to develop the expertise and technical capacity to manage the risks to data privacy, including from potential cyberattacks, and to financial integrity, which will require countries to strengthen their national identification systems so know-your-customer requirements are more easily enforced.
“There is also a risk that citizens pull too much money out of banks to purchase CBDCs, affecting banks’ ability to lend. This is especially a problem for countries with unstable financial systems.
“Central banks will also need to consider how CBDCs affect the private industry for digital payment services, which has made important strides in promoting financial inclusion through mobile money.”
