Several Central Banks in Sub-Saharan African (SSA) countries are actively preparing to launch a Central Bank Digital Currency (CBDC) by 2028, a recent survey report by the International Monetary Fund shows.
Notably, with Nigeria launching the e-naira in 2021, 6 more countries are preparing to launch a CBDC in the next 5 years.
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“Of the countries already engaging in CBDC work, about 67 percent are undertaking research related to CBDCs. Several countries are experimenting with pilots, sandboxes, and other tests, and a few countries plan to begin a pilot in the coming years.”
“A little over 25 percent (6 out of 23) are planning to launch their own CBDC within the next five years, with Nigeria having launched the e-Naira in October 2021,” the IMF report stated.
This development underscores Central Banks’ efforts to deepen financial inclusion, enhance efficiency in cross-border payment, and promote financial stability, transparency, and safety.
The report also noted that the decline in cash transactions during the pandemic and the progressive emergence of crypto assets increased most CBNs’ concerns about monetary sovereignty.
Thus, these factors accelerated the planning around CBDCs and the development of other digital payment systems.
Some Central Banks are also considering token-based and account-based digital currency designs, while some are exploring distributed ledger technology (DLT) for its implementation, the report stated.
However, legal challenges have hindered some Central Banks from issuing digital currencies. Some challenges noted include digital currency liability and chain of custody, indemnity, and political, and data integrity. These considerations may result in legislative amendments for some SSA countries.
“At least 55 percent of surveyed countries would need to change their laws before issuing a CBDC. In some countries, current legislation specifically refers to notes and coins as legal tender, requiring relevant laws to be amended for the issuance of a CBDC,” the report said.
In a similar report published yesterday, the IMF noted that the development of e-money, like a CBDC, in SSA strengthened monetary policy transmission, especially in countries with limited financial inclusion.
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“We find that e-money development has accompanied stronger monetary policy transmission, growth in bank deposits and credit, and competition among banks and efficiency gains in financial intermediation measured by deposit-to-lending rate spreads,” the report stated.
The report also noted a series of policy considerations for SSA countries surrounding the regulation of their CBDCs.
“E-money or CBDC should be accessible without the need for a bank account. This is crucial to allow e-money to improve access (financial inclusion).
Then, regulation should encourage a complementarity between e-money and banking sector growth. For instance, e-money balances should be channelled to banks and made available for loans,” it said.
