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More African central banks consider digital currencies – a possible game-changer for the continent


THE foray into central bank digital currencies (CBDC’s) in Africa is seen intensifying in 2022, following the roll-out and widespread uptake of the e-Naira, the continent’s first virtual currency backed and issued by a central bank.

More than 80 percent of world’s central banks are now considering launching CBDC’s, according to PwC’s 2022 CBDC Global Index.

“This year, central banks are ramping up activity in the digital currency space. The success of Nigeria’s eNaira is likely to spur CBDC development in countries where financial inclusion is one of the key desired outcomes,” said PwC UK, Blockchain & Crypto Specialist, Haydn Jones.

Nigeria tops the PWC’s global CBDC retail index – affirming the country’s success in deploying its digital currency. Despite the much-publicised early problems with the eNaira site, within three months after its launch, more than 600,000 eNaira speed wallets had been created, with app downloads in 160 countries.

Between October and December 2021, there were over 35,000 transactions using eNaira, with the bulk of these – 90 percent – being person to business and vice-versa, according to the index. This pattern suggests that the eNaira is being used for retail transactions.

Governments in Africa as well as central bank officials are paying close attention to the eNaira’s performance.

“We expect CBDC research, testing and implementation will intensify in 2022,” said Jones.

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Already, nine African countries are in the research stage, ahead of the adoption of digital currencies. Seven of these – Kenya, Madagascar, Eswatini, Rwanda, Ghana, Morocco and Tunisia – are listed by US think-tank, Atlantic Council on its Central Bank Digital Currency tracker.

Tanzania and Zambia, though not listed, have officially announced their interest in regulated digital money, while Kenya and Zambia earlier this year officially announced they were exploring the adoption and deployment of CBDC’s.

Kenya’s central bank (CBK) regulator has developed a discussion paper on digital currency – seeking public comment on its application to retail and cross-border transactions.

However, the CBK has warned that Kenya will not hurry the roll-out until stakeholders are able to address risks associated with cryptocurrencies.

“Let’s not look at CBDCs as the silver bullet for all the problems that we have. On the contrary, deal with the problems directly,” said CBK Governor, Patrick Njoroge, during a Bank for International Settlements (BIS) Innovation Summit in March.

While acknowledging digital currencies’ potential to expand financial inclusion, improve traceability, safety and efficiency of payment systems, Bank of Zambia, the country’s central bank, said in February it would conclude its research on digital currencies only in the fourth quarter of the year.

Mauritius, which was looking at rolling out its regulated digital currency in 2021, is still in the development stage, according to Atlantic Council.

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South Africa is closest to making an official rollout announcement, with signs that project Dunbar, in which it is involved, is nearing the completion of its pilot phase.

Project Dunbar is led by the BIS Innovation Hub (based in Singapore), in partnership with the Reserve Bank of Australia, Central Bank of Malaysia, Monetary Authority of Singapore, and South African Reserve Bank

On March 22, BIS Innovation Hub and the South African Reserve Bank confirmed the successful testing prototypes that will enable international settlements using central bank digital currencies.

In a joint statement, they said two prototypes developed for the project demonstrated the technical viability of shared multi-CBDC platforms for international settlements.

“Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms,” said BIS Innovation Hub Centre – Singapore Head, Andrew McCormack.

The PwC ranks South Africa sixth in global CBDC Wholesale Index, with this and Nigeria’s top rank in the retail segment highlighting a readiness by African central banks for CBDC’s to be used to transact both low and high-value digital currency transactions.

PwC Nigeria’s Financial Services Leader and Chief Economist, Andrew Nevin, said government-regulated virtual currencies will transform payment systems, as low value-added transactions become possible in cost-effective and secure ways.

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“As each use case develops, we can bring more people into the economic and financial system and lift tens of millions out of poverty,” he said.

By The African Mirror