Kenya considering adoption of digital currency

The Central Bank of Kenya (CBK) is among seven others in Africa researching on the benefits of digital currency in promoting payments efficiency.

According to the Absa Financial Index 2021, Kenya's banking regulator alongside Eswatini, Ghana, Mauritius, Morocco, Rwanda, Nigeria and South Africa is exploring use of digital currencies for retail purposes

Eswatini and Mauritius are considering virtual currency both for retail and wholesale purposes.  

A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerised database using strong cryptography to secure transaction records.

Kenya's involvement in the research is a departure from a hard stance that saw it issue a statement against the adoption of the digital coin in 2015.

In Circular 14 of 2015, CBK dismissed reports by a section of media that it had welcomed the holding and trading of cryptocurrency in Kenya.

At the time, the apex bank dismissed Bitcoin as an unregulated digital currency that is not issued or guaranteed by any government. 

''Transaction in virtual currencies such as Bitcoin are largely untraceable and anonymous, making them susceptible to use by criminals in money laundering and terror financing,'' CBK said.

Last year, CBK governor Patrick Njoroge bowed to the pressure of the fast-changing global financial market, announcing plans to enter into discussions with other global central banks on the possibilities of entering the digital currency space.

 ''We are already feeling left out and need to create our own space,” Njoroge said. 

He said while Kenya has various transaction channels, CBK is keenly watching the niche that cryptocurrencies are trying to play in.

He, however, warned that those spaces need to be well mapped out so as to address such concerns as money laundering and financing of illicit activities.

Worldwide adoption of cryptocurrency has skyrocketed by 880 percent over the past year, especially in Vietnam, India, Pakistan and other emerging economies, according to blockchain analytics firm Chinalysis.

According to the Global Crypto Adoption Index, titled “Geography of Cryptocurrency,” which compared the countries’ cryptocurrency adoption, Kenya leads Africa.

Vietnam is the most adopted country to crypto achieving an overall index score of 1 followed by  India(0.37), Pakistan (0.36), Ukraine (0.29), and Kenya (0.28).

The index measured three main parameters: chain retail value transferred, chain cryptocurrency value received, and peer-to-peer(P2P) exchange trade volume between June 2020 and June 2021.

Several countries in emerging markets, including Kenya, Nigeria, Vietnam, and Venezuela rank high due to huge transaction volumes on peer-to-peer platforms when adjusted for PPP per capita and internet-using population,” the report read in part. 

A survey conducted by the Wall Street Journal late last year found that the pandemic has accelerated a shift from the use of physical cash in most developed economies, with alternative payment methods or private cryptocurrencies potentially taking its place.

''Central banks are exploring ways to create a digital version of cash: money that is trusted, convenient to use and widely available to people, for making payments and getting paid,'' the survey read in part. 

It added that digital currencies have the potential to make it easier, cheaper and faster to move money around.

Last month, El Salvador's historic adoption of bitcoin as legal tender was marred by teething problems, as an angry protest by mistrustful citizens, technological glitches and a dip in the cryptocurrency clouded the rollout.

Money experts termed the move as folly, as such currencies are not designed to fulfil any of the classic functions of money – a unit of account, store of value, or means of payment – because their prices are extraordinarily volatile. 

In April, Bitcoin was the talk of the investing world as it roared past an astonishing $64,000 for a single coin. Then, in a flash, $1 trillion in value was wiped off the global crypto market in a single week.

It has had seven major crushes since 2011.