Kenya has postponed the implementation of the Central Bank Digital Currency in the near future, saying the current pain points in payments could potentially continue to be addressed by other innovative solutions.
The CBDC had been viewed as the silver bullet that would save Kenya billions by reducing the amount of hard cash printed, especially with the exit of De La Rue from the local market.
Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank.
They are pegged on the value of a country's government-issued currency that is not backed by a commodity such as gold.
A CBDC issued by the Central Bank of Kenya would be a sovereign currency in an electronic form, and it would appear as a liability on CBK’s balance sheet and an asset to users holding it.
Experts had opined that the use of digital currency would work to eliminate the cost of printing cash, on top of lowering transaction costs and making it easy for central banks to implement monetary policy in real-time.
However, CBK has raised concerns with the initial cost of its implementation and the change in push for the currency adoption terming it ‘not a compelling priority.’
“Further, central banks that were first to roll out CBDCs have recently faced challenges that have hampered implementation. Additionally, recent instability in the global crypto assets market has amplified concerns and the need for a careful review of the innovation and technology risks,” CBK said in its report after seeking views from the public.
In February 2022, CBK issued a Discussion Paper on Central Bank Digital Currency and sought views from the public on the potential applicability of a Central Bank Digital Currency (CBDC) in Kenya.
The objective was to inform policy decisions and public acceptance regarding the innovation.
CBK has now compiled the comments and announced the issuance of Discussion Paper on Central Bank Digital Currency: Comments from the Public.
In the report, the regulator cited challenges coming with Central Bank Digital Currency(s) (CBDCs) as the reason why the country pushed the implementation to the long term.
The Discussion Paper elicited over 100 responses from a diverse range of individuals, public institutions, commercial banks, payment service providers (PSPs), technology providers, academia, the legal fraternity, and international development partners.
The responses were from across nine countries: Kenya, South Africa, United States of America, United Kingdom, the Netherlands, Germany, Switzerland, Sweden, and Japan.
According to the regulator, respondents highlighted increased efficiency, transparency, and lower costs as the highlights that would drive the adoption of CBDC.
However, the disintermediation of banks, high implementation costs, technology and cyber risks, and financial exclusion have now prompted the state to reconsider the move.
“Respondents also highlighted the need to consider Kenya’s highly developed digital payments ecosystem and the high level of financial inclusion. Further, while a CBDC may be useful for cross-border transactions, its risks should be carefully considered,”CBK notes.
The dramatic impact that mobile money has had on the financial revolution in the country was viewed as one that would set a favourable signal towards the implementation of CBDC.
Central Bank says understanding of CBDC issues is deepening with the ongoing work internationally, adding that the country is uninterested in issuing an e-Shilling in the near future but remains open to CBDC developments that could change the current landscape.
“For instance, the Bank for International Settlements (BIS), the International Monetary Fund (IMF), and other central banks continue to do research and/or implement CBDC projects. Nevertheless, on the global stage, the allure of CBDCs is fading,” CBK said.
This would be consistent with CBK’s vision for a payments system that is secure, fast, efficient, accessible to and works for Kenyans.
Nevertheless, CBK will continue to monitor developments in CBDCs to inform future assessments of the need for CBDC in Kenya.
Major global central banks have deferred the decision on the adoption of CBDCs.
This measured approach is consistent with the approach that CBK is taking.
CBK has also been collaborating with other central banks that have developed proof of concepts for CBDCs, to benefit from their experience.
Additionally, CBK is working with central banks that have implemented CBDCs to understand if the expected benefits have been realised.
