- The Central Bank of Kenya has published a discussion paper on a CBDC for the public to submit their views
- CBK governor is optimistic about the country adopting a central bank digital currency
- Written representations and submissions should be sent to the Central Bank of Kenya by May 20, 2022, at 5.00 p.m.
The Central Bank of Kenya has published a discussion paper on a central bank digital currency (CBDC) for the public to submit their views.
The discussion paper has invited comments from the public to be reviewed when assessing the potential use case of a CBDC in Kenya. The paper also scrutinizes the applicability of a CBDC in Kenya, if adopted, as part of the Central Bank’s initiative to ensure informed policy decisions regarding innovations.
The public’s written representations and submissions should be sent to the Central Bank of Kenya by May 20, 2022, at 5.00 p.m.
The central bank will collect comments on the issue via an online form for 120 days.
A CBDC is a country’s national currency that exists in electronic form, under issuance, control and regulation of the country’s monetary authority and supported by the government.
Opportunities and risks posed to Kenya upon adoption of a CBDC.
CBK governor is optimistic about adopting a central bank digital currency. Kenya eyes at adopting a CBDC to;
- Facilitate cross-border payments.
- Mitigate systemic risks and enable the seamless trace of money transactions.
- Promote financial stability and create a resilient mode of payment.
- Embrace new technological advancements that may be inevitable in the future.
Dr Patrick Njoroge said that CBDCs could reduce the time needed to complete cross-border payments in addition to significantly cutting costs.
However, the bank says that a digital currency also poses a wide variety of risks;
- A CBDC could invalidate the effectiveness of monetary policy and increase the risks of potential money laundering.
- The digital currency would constrain commercial banks and possibly kill their relevance.
- Kenya’s CBDC would promote financial exclusion to the majority population who do not have access to technological knowledge and infrastructure.
- Technological risks posed by an ultimate legal tender system are enormous.
“The balance of risks and benefits of central bank digital currency will vary from one economy to another,” the bank said in a statement.
Required fundamentals for a digital currency to work in Kenya.
To adopt a digital currency in the country, the government of Kenya should ensure that the CBDC is;
- Simple to use by the majority of the population in the country.
- Has lower transaction costs than the already existing mode of payments.
- Supports flawless convertibility to other currencies.
- Continually available and has a high degree of security
- Flexible and safe.
The Central Bank of Kenya added that all countries in the region needed to participate in flattening the multi-layered correspondent banking structure and shortening the payment chains for a digital currency to work.
The development of CBDCs has been on the rise. According to a 2021 survey of central banks by the Bank for International Settlements (BIS), 86 per cent of central banks are in the process of researching the potential for CBDCs, 60 per cent are experimenting on them, and 14 per cent were deploying pilot projects.
CBK is still firm on a cryptocurrency ban.
CBK has maintained the cryptocurrency ban and has not issued a digital currency due to concerns about the risks of a CBDC.
CBK Governor said on January 27 that the bank’s position on the restrictions of cryptos like bitcoin in Kenya remains in place.
The CBK has also issued circulars to local commercial banks warning them against dealing with cryptocurrencies transactions or facing penalties for non-compliance. The last circular was issued in 2018 and has remained in action up until now.
“What is the need that they are filling? Or is it a new tool, and we are interested in just the technology but not how it will help citizens in the country,” Patrick Njoroge said.
He said that technologies should solve problems, but cryptos support illicit trading.
Commercial banks in Kenya have been stamping out customers with bank accounts for cryptocurrency transactions. Some have gone to the extent of issuing notices to customers buying cryptocurrencies, warning them of permanent closure of accounts. CBK seems to be waking up to reality and issuing the discussion paper is just the beginning.
Kenya tops P2P crypto transactions globally.
Kenya topped peer-to-peer cryptocurrency transaction volumes despite the ban in the 2021 Global Crypto Adoption Index survey.
Peer-to-peer trading, or P2P, is the buying and selling of cryptocurrencies directly between users, without third-party interference or regulation. The P2P transactions in Kenya report a high volume due to the ban by the Central Bank.
According to The Mastercard New Payments Index survey, 43 per cent of Kenyans say they plan to use cryptocurrency in 2022, with more than 69 per cent noting they are more open to using crypto than they were a year ago.
In 2021, crypto adoption jumped by over 880%, with P2P platforms driving usage in the emerging market. In Kenya, many used crypto to conduct international transactions for individual remittances and purchase goods to import and sell.