CBDC is not a priority, says the Central Bank of Kenya

The Central Bank of Kenya (CBK) has made it known that it is in no race to roll out a central bank digital currency (CBDC) because it wants to ensure a safe and efficient payment system for Kenyans. Instead, the bank noted that the country’s payments problems could be solved by strengthening innovations around the existing payments ecosystem.

The details

• In its Bank Supervision Annual Report for 2022, the CBK disclosed that its stance resulted from the responses it got following the release of a discussion paper on CBDC in February 2022.
• According to the bank, most respondents believed the CBDC endeavor was fraught with risks.
• While the CBK admitted that CBDCs could solve the inefficiencies around existing payments systems and impact cross-border payments, problems such as the availability of internet and smartphones could pose an expensive barrier to the widespread adoption of the currency.
• In addition, the bank highlighted the need for public awareness and education on CBDCs and cryptocurrencies, especially on how they differ.
• The bank further noted that the first CBDC rolled out in Africa — the eNaira — has witnessed a slow adoption rate and has done little to help financial inclusion, a significant problem the CBDC was touted to solve.
• In defending its stance, the bank also pointed to other central banks, such as the Bank of Tanzania and the Bank of England, which have adopted a cautious position toward CBDCs.

Telling quote

• The report stated:

“The rollout of CBDC should not be a race to be first. CBK’s vision is for a payments system that is secure, efficient, and widely available to and works for Kenyans. Presently, Kenya’s pain points in payments can potentially be solved by strengthening innovations around the existing payment ecosystem. Accordingly, implementation of a CBDC may not be a priority in Kenya in the short-medium term.”

Be smart

• Concerns around internet and smartphone access are potentially overblown, given that CBDCs can be integrated with the unstructured supplementary service data (USSD) protocol that powers mobile money.
• Last year, Nigeria’s central bank partnered with digital communications service provider Clickatell to launch an eNaira USSD channel.

Failed CBDCs?

• Nigeria was the first African country to roll out its CBDC — the eNaira — in October 2021.
• However, after an initially slow start, the Central Bank of Nigeria declared that it witnessed a 63% increase in transaction volume and a 12-fold increase in the creation of new wallets since last October, per a Mariblock report.
• Earlier in May, Mariblock also reported that Zimbabwe has rolled out a gold-backed CBDC to fight inflation and create an alternative store of value. It is, however, too early to tell the adoption rate of the new digital currency.

Kenya’s crypto view

• The CBK was one of the earliest banks to take a stance on cryptos, issuing a public notice that cryptos are not legal tender in the country. Banks have gone as far as closing bank accounts interacting with peer-to-peer crypto exchanges platform.
• Regardless, crypto adoption in the country has been on the rise. A United Nations Conference on Trade and Development (UNCTAD) report found that about 4.25 million Kenyans (8.5% of the population) own and deal in digital currencies.
• The country introduced a bill to tax crypto exchanges earlier this year despite the CBK’s unfriendly stance.
• An amendment to the Capital Markets Bill 2022 sought to tax crypto service providers with the excise duty-type tax associated with bank transactions.
• The CBK, in February 2022, published a discussion paper on CBDCs examining the applicability of a potential CBDC in the country while also evaluating other existing CBDC initiatives worldwide.