Kenya’s central bank is exploring the potential adoption of a central bank digital currency (CBDC) and has invited the public to submit their opinions on the matter by May 20. This announcement follows news that Zambia is also testing the feasibility of CBDCs, highlighting a growing trend across Africa.
CBDCs, unlike cryptocurrencies such as Bitcoin or Ethereum, are state-issued and pegged to fiat currencies. Nigeria, for instance, launched its eNaira in October 2021, making it the first African country to roll out a digital currency. Ghana is also advancing its e-cedi initiative, while the Bank of Zambia is conducting research in the same field.
In its discussion paper, the Central Bank of Kenya (CBK) emphasized that the primary benefits of a CBDC could include reduced transaction costs, greater interoperability, and enhanced cross-border payment capabilities. Notably, Kenya’s mobile money ecosystem, spearheaded by the 2007 launch of M-Pesa, has already significantly boosted financial inclusion in the country.
“The current domestic payments landscape showcases a vibrant and inclusive digital currency in the form of e-money. Consequently, introducing a CBDC in Kenya would not primarily aim to enhance access to financial services but rather to address areas such as interoperability and cost efficiency,” stated the CBK.
According to the CBK, mobile money usage remains robust, with Kenya’s 38 million subscribers transacting $55 billion in the first 11 months of 2021—a 20% increase compared to the previous year. The CBK envisions a CBDC complementing this ecosystem, especially for cross-border payments.“Connecting payment systems regionally and globally will be crucial in the future. CBDCs could provide the interoperability needed to facilitate such connections,” the CBK noted.
Despite its promise, the adoption of CBDCs is not without challenges. The International Monetary Fund (IMF) has highlighted potential macroeconomic risks, including increased currency substitution and susceptibility to financial shocks, especially when CBDCs become available for cross-border transactions.
Globally, nine countries have already launched digital currencies, with Nigeria leading the way in Africa. Fourteen nations are in the pilot stage, while 87 others are actively exploring the concept.
