The Central Bank of Kenya is considering the use of Cryptocurrency/AFP
NAIROBI, Kenya, Nov 12 – The Central Bank of Kenya (CBK) has announced that its exploring the use of Central Bank Digital Currency (CBDC) as digital currencies take shape globally.
CBK Governor Dr. Patrick Njoroge said the bank is in discussions with other global Central Banks on the possibilities of introducing the CBDC, a move aimed at enhancing the efficiency of cross border payments.
Njoroge who spoke during the sidelines of the Afro – Asia Fintech Festival said CBDCs can slash the time needed for cross border payments in addition to cutting costs significantly.
“We see the benefits would be more cross border. The issue is not to be first, the issue is to do it right,” he revealed.
The move comes after Nigeria launched its digital currency in October dubbed eNaira in the market becoming the first African country to launch a digital currency.
Nigeria President Muhammadu Buhari said eNaira would increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.
Alongside innovation, he said, the adoption of a CBDC could improve economic activities and increase Nigerian GDP by $29 billion over the next 10 years.
Meanwhile, Ghana is already testing its CBDC e-Cedi and is working to make the currency available to offline users.
Other African countries exploring the CBDC include South Africa and Rwanda. .
A CBDC is money that exists solely in electronic form, issued and regulated by the nation’s monetary authority and backed by the government.
Central banks across the world are exploring ways to create virtual money as legal tender following the growth in digital payments, cryptocurrency and privately issued stablecoins.
According to the Bank of International Settlements, more than 85 percent of the world’s central banks are working on central bank digital currencies.
The People’s Bank of China has already implemented a digital yuan, and the European Central Bank wants to launch a digital euro by 2025.
“CBDCs have the potential to revolutionize monetary policy. Rather than providing an alternative to national monetary systems, so-called GovCoins would mirror each country’s fiat currency, using blockchain technology to strengthen central bank oversight,” said Alberto Gallo Portfolio Manager at Algebris Investments.
Gallo said the architecture of CBDCs will determine how much information central banks will have on individual transactions.
“In theory, a digital dollar using the blockchain could provide the identity of each buyer and seller in a transaction, giving the Fed real-time data on individual “wallets”. This may give the Fed the ability to tier interest rates at various levels for economic sectors or regions, rather than relying on commercial banks for policy transmission,” Gallo noted in his latest publication on Bloomberg.
Kenya is already leading the world in trading cryptocurrencies directly with each other.
Latest data from Chainalysis, Global Crypto adoption Index 2021 has ranked Kenya the top country in the world in terms of peer to peer exchange trade, well ahead of the other 154 countries surveyed.
According to the data, the move was influenced by the danger of weakening African currencies due to the Covid -19 pandemic that hindered reopening of economies.
“Many emerging markets face significant currency devaluation, driving residents to buy cryptocurrency on P2P platforms in order to preserve their savings,” the report states.
The report also ranked Kenya the highest adopter of Cryptocurrencies in Africa, followed by Nigeria. Both countries are ranked 5th and 6th globally.
In 2015, CBK cautioned Kenyans against the use of digital currencies.
“This is to inform the public that virtual currencies such as Bitcoin are not legal tender in Kenya and therefore no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business,” CBK said in a statement in December 2015.