Tips to consider when adopting digital currency- Experts

Having a digital identity, technology, right laws, clarity and public awareness of the benefits of having a digital currency are some tips to consider when adopting or intruding digital currencies, experts in the financial industry say.

These tips were revealed at the International Monetary Fund (IMF) virtual event held last week.

The event titled ‘Central Bank Digital Currency (CBDC) and private digital payments in Nigeria and Kenya: Challenges and opportunities for Sub-Saharan Africa’ had a panel of distinguished policymakers who shared their respective experiences and practical challenges in introducing CBDC/PDPs as well as discussing the possible benefits, costs, and key risks for our African membership.

“You cannot stress the importance of having a digital identity for consumers because if you don’t have that once you introduce a digital currency you might have a problem,” Kingsley Obiora, deputy governor Economic Policy Directorate of the Central Bank of Nigeria (CBN) said.

“The technology in setting up and developing the currency is very expensive in terms of money and manpower. Most of the technology that you need would have to come from outside your system,” Obiora

He also added that one must look at the law itself in setting up the central bank issuance of currency. “A lot of countries may need to change their laws to be able to even issue a digital currency.”

Obiora cited an example of Nigeria where they do not have to set up laws since the CBN already covers their powers to issue any form as long as the president of the country is noticed and is approved by him and its board as well.

The chairman of the Africa Finance Corporation also advised that since the currency is new, it is very important to take baby steps. “Steps that allow you to face an approach so that disruptions and difficulties can be managed in a sequential manner, so that it does not disrupt the entire system.”

He did, however, mention some of the primary dangers of establishing the CBDC, which include banking sector disintermediation, operational risks associated with knowing that there is continuous service, cyber security concerns, internet outages, and financial literacy.

But Patrick Njoroge, governor at Central Bank of Kenya whose country is yet to adopt the CBDC questions its adaptation based on the benefits it would have on the ordinary consumers in his country.

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“Before we adopt it, we must question the benefits it will have for the ordinary Kenyan on the street of that transaction. All the wallets will be here in the central bank and it will be what exactly any CBDCs will be out there. So, I don’t see any direct benefits of such an operation.”

A digital currency is a means of payment or money that exists in a purely electronic form.

The aim of the digital currency is set to achieve the following such as promote and facilitate financial inclusion, enable direct welfare disbursements to citizens, facilitate diaspora remittances, reduce the cost of processing cash, improve the availability and usability of Central Bank money, increase revenue and tax collection, support a resilient payment system and improve the efficiency of cross-border payments.

“The CBDC would provide enormous benefits to Nigeria, which is why the CBN opted to implement it,” Obiora said.

Last year, the CBN launched its eNaira as a legal tender, making Nigeria the first African country to launch a CBDC. According to President Muhammed Buhari, a properly managed e-Naira could add more than $29 billion to Nigeria’s GDP over the next 10 years.

A recent Global CBDC Index by PricewaterhouseCoopers (PwC) ranked Nigeria, Bahamas, China, Jamaica, Eastern Caribbean, Ukraine, Uruguay, Thailand, Sweden and the republic of Korea as the top 10 countries leading the race in digital currency

The Index in its second edition, titled ‘The race to digital money stated that these countries led the retail project indexes of central banks globally in the Index.

Haydn Jones, the blockchain & crypto specialist at PwC UK said the success of Nigeria’s eNaira is likely to spur CBDC development in countries where financial inclusion is one of the key desired outcomes.”

“Countries are at differing levels of maturity with CBDCs and each country has different motivating factors. Increasing financial inclusion, facilitating cross border payments and controlling financial crime are all factors that come into play. We expect CBDC research, testing and implementation will intensify in 2022,” Jones further said.

Also, at an IMF event, Obiora revealed that the CBN is set to introduce the Unstructured Supplementary Service Data (USSD) code as part of steps to improve the (CBDC).

“We have made serious progress in the last seven to eight years because when the current governor resumed in 2014, one of the pillars of his vision was to significantly improve financial inclusion.

“So at the time, we were at 48 per cent of our population within the financial system and given several policies that he conceived and implemented, we are almost at 70 percent.

“That still leaves us with about 30 percent of our population out of the financial system and we believe the CBDC can help reduce that number even more.

“A lot of people might not have smartphones but that is essentially the next step of our improvement in the CBDC, to introduce the USSD code, so those that do not have smartphones can still transact,” Obiora said.