Going digital

Despite Controversies, Africa’s Central Banks Are Racing To Mint CBDCs

By  |  November 2, 2022

More than 100 countries around the world, including 19 G20 member states, have started looking into the central bank digital currency (CBCD) concept. So far, a little over 10 countries have launched e-currencies, and more than 15 nations are running pilots. 

While developed economies are joining the “pilot” pack, developing counterparts are leading the charge. It is a trend spreading mostly to Southeast Asia and Latin America, but it equally sees more countries in Africa consider the idea of introducing digital versions of their local currencies. From the looks of developments in the space, most countries in the region are willing to walk the digital fiat path. 

In October 2021, Nigeria, Africa’s largest economy and most populated country, launched the eNaira to become the first in the continent and second in the world [after the Bahamas} to do so. No other country in the region has followed suit—at least not yet—but a handful of central banks are willing to take their chances. 

The Bank of Ghana (BoG) started exploring a possible retail eCedi in 2019 and commenced testing the currency in 2020. The West African country joined ranks with Giesecke+Devrient, a German company specializing in banknotes and securities printing, to begin the pilot. The apex bank has high hopes that the project would foster financial inclusion. 

In 2021, as part of the second phase of an initiative called Project Khoka, the South African Reserve Bank (SARB) revealed that it is experimenting with a wholesale CBDC for financial institutions’ interbank transfers alone. Meanwhile, South Africa is partaking in a cross-border pilot with the central banks of Singapore, Malaysia, and Australia. 

The Reserve Bank of Zimbabwe (RBZ) stated in March 2021 that, looking to explore the technology for the Zimbabwean Dollar, it has launched a regulatory sandbox and invited the comments of the general public. Zimbabwe has developed a roadmap and, bullish on its plans, is taking lessons from Nigeria to sidestep the loopholes associated with local CBDC adoption. 

Same last year, the Bank of Tanzania (BoT) indicated its interest in rolling out a digital version of the Tanzanian Shilling. In 2022, the central bank said it is taking steps towards launching the CBDC as a “safe alternative” and that it is closer than ever to introducing the tender. While Tanzania is likely to be the second to do it in Africa, no date has been set yet for the unveiling. 

Kenya, Uganda, Rwanda, Zambia, Botswana, Namibia, Mauritius, Morocco, and Sudan are the other countries in Africa that are currently conducting research into CBDC activities. These and the aforementioned nations mull such a project because it would go a long way in increasing access to the digital economy, favorable fiscal policies, monetary sovereignty, and payment resilience. 

Practically, CBDCs can also lend a hand in helping the continent facilitate cross-border payments. Africa remains the world’s most expensive region to send and receive money, with an average cost of 8 percent of the amount to be transferred. With central bank-backed digital currencies, remittances could be easier, faster, and cheaper since there would be competition among providers. 

Africa’s first digital currency, the eNaira is unarguably performing below expectations. Nigerians are so obsessed with virtual money that it is ranked the top cryptocurrency market in Africa but the craze is stopping short at the eNaira. Per Bloomberg, over a year after its launch, less than 0.5 percent of the country’s 217 million people use the currency. 

The eNaira’s flop is not the only deterrent to investing in national crypto projects; others announced since 2018, like Tunisia’s eDinar and Senegal’s eCFA, have also shown that African governments have much work to do in connecting financial systems rather than merely becoming a digital banker to the masses. These failed projects ought to serve as a guide to subsequent subscribers.

The lack of infrastructure in some countries is not necessarily a barrier. The ultimate challenge is convincing consumers to adopt what is [basically] a generational change in the way they transact money. Introducing CBCDs is an expensive affair and the continent is a long way off from mass adoption, but stakeholders anticipate a change of tide as they look to bank the unbanked and underbanked. 

Featured Image: Atoz Markets

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