## tarea2025016-print-pdf ## Source details **Canonical URL:** [tarea2025016-print-pdf](https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025016-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2025/english/tarea2025016-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2025/english/tarea2025016-print-pdf.pdf.json) --- ### Mission overview and engagement - At the request of the Bank of Namibia (BoN), the IMF conducted technical assistance from January 15 to February 1, 2024; virtual meetings started on January 15 and an onsite mission was conducted from January 23 to February 1, 2024. - Mission objectives: - Assisted authorities in evaluating value propositions and reviewing foundational requirements of retail central bank digital currency (rCBDC). - Helped draft a rCBDC exploration roadmap tailored to Namibian circumstances and needs. - Engagement history: - Third engagement with BoN on rCBDC: participation in a virtual CBDC workshop (February 2023) and a 4-day virtual CBDC training workshop (October 2023). - Mission team composition included MCM, ITD, AFRITAC South advisor on-site; LEG, CSF, and a Short-Term Expert attended virtually. - Stakeholder meetings: Deputy Governor Leonie Dunn; BoN departments (Payments and Exchange Control, Monetary Policy, Financial Markets, Financial Stability, Banking Supervision, Strategy Projects and Change Management); Namibian commercial banks; nonbank PSPs; a mobile network operator; other government agencies and self-regulatory bodies. ### Principal conclusion and high-level assessment - Principal conclusion: The mission did not find a strong case for issuing a rCBDC in Namibia at the moment. - Rationale: - Ongoing domestic initiatives (IPS, NamPay, TCIB) aim to address affordability, interoperability, and cross-border retail payments. - Many commercial banks already committed resources to IPS and may lack capacity to support an additional rCBDC project. - Key rCBDC features (offline capability, programmability) rely on technologies still in experimental phases and could pose systemic risks if poorly designed. - Root causes of financial exclusion (inadequate infrastructure, low financial literacy) are not directly solved by rCBDC; non-CBDC measures may be more effective and immediate. - Net assessment: Identified promising rCBDC benefits (instant central bank money payments, offline payments, programmable payments) but overall net benefits likely marginal at present given alternatives and macro-financial risks. ### Payments and settlement infrastructure — findings and statistics - NPS core components: - RTGS: Namibia Interbank Settlement System (NISS). - ACH: Namibian Clearing House (NamClear). - NISS (RTGS): - Aggregate settlement value in 2023: N$1,205.2 billion. - Total volume in 2023: 93,056 transactions; averaging 319 transactions per settlement day. - Average annual growth (past five years) of aggregate value settled in NISS: 5.7 percent. - Average annual growth (past five years) of volume settled in NISS: 9.5 percent. - NamClear (ACH): - Total value of interbank transactions cleared through NamClear in 2023: N$431 billion (35.7 percent of aggregate NISS value). - 2023 component values: - EFT (debit and credit): N$388 billion. - Card payment transactions: N$43 billion. - Intrabank transaction values in 2023: - EFT intrabank transactions: N$839 billion. - Card transactions between merchants and customers: N$58 billion. - Intrabank electronic money transactional value: N$38 billion. - SADC RTGS (regional): - March 2024 total value processed: R210 billion; Namibian banks accounted for 24 percent. - Participation: 15 of the SADC 16 member countries; five Namibian participants (including nonbank PSPs). - Regulatory framework: - Payment System Management Act of 2023 establishes BoN powers for payment systems oversight and licensing; BoN Act 1 of 2020 provides BoN legal basis. - Payments Association of Namibia (PAN) acts as collaborative platform for members (mandate reformed). ### Retail payments landscape, fees, and usage - NPS participants: seven banking institutions, 21 nonbank PSPs, and the BoN. - E-money issuers: eight (four banks and four nonbank PSPs); closed-loop systems limit interoperability. - Fees and access: - Domestic payments incur multiple and generally high fees; ATM network limited; fees vary and are complex. - Near-real time credit transfer fees significantly higher than ordinary credit transfers. - World Bank database: average transaction cost of sending cross-border remittances to Namibia was more than 19 percent in 2020 — the third highest in Sub-Saharan Africa and the fourth highest in the world. - Consumer preferences (BoN survey, 2023; sample of 600 respondents across seven towns): - 84 percent preferred cash for paying for goods and services. - Card payments (debit and credit cards) are the second most preferred. - Cash reliance increases cash management expenses and likelihood of payment errors for social grants, especially for pensioners. ### New initiatives: NamPay, IPS, and TCIB - NamPay: - Objective: modernize payment system; implement ISO 20022. - New payment streams: Enhanced Debit Orders (EnDO), Enhanced Credit Transfers (EnCR), Near Real Time Credit Transfers (NRTC). - IPS (Interoperable Payment System): - Aims to enable real-time, interoperable 24/7 transactions across banks and nonbank PSPs; BoN finalizing vendor selection. - Expression of Interest refers to real-time processing and switching but does not explicitly refer to immediate settlement in central bank money. - TCIB: - Cost-effective, interoperable clearing solution for high-volume, low-value, near real-time cross-border payments in SADC; settlement in SADC-RTGS in batches. - Namibia an early TCIB participant but adoption remains low. ### Financial inclusion — findings and statistics - Financial inclusion progress: - 2017 Namibia Financial Inclusion Survey: around 78 percent of Namibian adults financially included (up from 69 percent in 2011 and 49 percent in 2007). - World Bank Global Findex: account ownership increased from around 60 to over 81 percent from 2014 to 2017, then dropped slightly to 71 percent in 2021. - World average: 76 percent. - Regional average (Sub-Saharan Africa): 55 percent. - Digital payments: 66 percent of adults in Namibia made or received at least one digital payment in 2021 (up from 45 percent in 2014). - Regional average: 49.5 percent. - World average: 64 percent. - Gaps: - Rural-urban account ownership: 65 percent in rural areas vs 82 percent in urban areas. - Digital payments in rural areas: 20 percentage points lower than urban areas. - SMEs: around 42 percent face challenges accessing credit. - EGDI (2022): Namibia 0.5322; African region average 0.4054; world average 0.6102. - Legal/infrastructure constraints: lack of data protection law; no national digital ID yet. ### rCBDC value propositions for payments and inclusion - Potential rCBDC benefits: - Instant and affordable retail payments and settlement in central bank money accessible to diverse PSPs. - Enhanced resiliency as a backup payment system (though physical cash already serves as a backup). - Improved interoperability across providers and potential affordability improvements. - Cross-border wallet-to-wallet transfers if coordinated multinationally. - Platform for innovation via programmability and APIs. - Improved transparency and automation in government payments (programmable social grants); offline functionality important for rural recipients. - Limitations and risks: - Building a publicly accessible rCBDC is highly resource-intensive and requires long-term commitments. - Offline and programmability features rely on immature technologies. - rCBDC could introduce macro-financial risks (liquidity management, bank disintermediation, FX reserve volatility) if not designed carefully. - rCBDC may not directly address root causes of exclusion (connectivity, digital literacy). ### Macro-financial implications and monetary policy considerations - Monetary policy and liquidity management risks: - rCBDC could challenge BoN liquidity management and increase short-term market rate volatility. - Mitigation options: improved liquidity forecasting, liquidity operations at fixed rate with full allotment, eligibility rules, holding limits, and potential remuneration design. - FX reserve management: - CMA requirement for full reserves backing of physical currency would presumably apply to rCBDC, potentially making FX reserve needs more volatile. - If rCBDC is used cross-border or held by non-residents, policy discretion relative to SARB could be reduced. - Remuneration and transmission: - BoN’s repo rate: 7.75 percent, 0.5 percentage points below the SARB’s repo rate. - Remuneration of rCBDC could be a policy tool but presents trade-offs between influencing deposit rates and causing deposit disintermediation. - Financial stability risks: - Bank disintermediation risk if wide rCBDC adoption causes significant deposit substitution. - Potential for easier systemic runs in times of distress depending on rCBDC design. - BoN balance-sheet implications: increased maturity, liquidity, and credit risk transformation if deposits shift to rCBDC. - Banking sector context (as of January 2024): - Nine banks licensed: seven commercial banks, a branch of a foreign bank, and a representative office. - Four large banks (three subsidiaries of South African banks) hold more than 90 percent of total banking assets. - More than half of bank loans directed to residential and commercial mortgages. - Around 70 percent of banks’ total liabilities are deposits. - 30 percent of total deposits are demand deposits. - Banking sector profitability: 2.4 percent in 2020 to 19.8 percent in 2022. - Deposit insurance: maximum compensation amount N$ 25,000 (roughly $13,000), covering more than 90 percent of depositors. - Banking Institutions Act (2023) grants BoN full banking resolution powers; resolution framework not yet finalized. - Recommendations to mitigate risks: - Conduct macro-financial analysis and design options (holding limits, tiers, remuneration) to limit risks. - Strengthen liquidity forecasting and management; operationalize emergency liquidity assistance; reinforce collateral framework. - Collaborate with CMA central banks to mitigate currency substitution risks and revise FX reserve coverage requirements. - Enhance public awareness and trust in deposit insurance and resolution frameworks. ### Foundational requirements — capacity, technology, cybersecurity, legal - Institutional capacity: - BoN CBDC working group established in 2022 with 18 members; no full-time staff committed to the project. - Resource needs: staff expertise in technology, payments, law, communication, risk management; high upfront investment and 24/7 operational requirements. - International comparators (central bank staff engaged in CBDC projects at end-2021): Bahamas 15; Bank of Canada 50; PBoC 300; ECCB 12; Riksbank 20; Banco Central de Uruguay 0 (10 during pilot). - Technology readiness and interoperability: - BoN IT capacity may be challenged to ensure seamless technical interoperability across rCBDC ledger, RTGS, wallets, intermediaries’ back-end systems, and analytics. - Commercial banks’ mobile applications and core systems are technically agile to integrate a new currency. - Infrastructure constraints: approximately 48 percent of Namibians live in rural areas; unstable or limited internet and electricity coverage; relatively low smartphone penetration. - Digital ID not yet in place; some banks provide remote onboarding with manual verification. - Data localization and cloud restrictions may impede scalable distribution. - Scalability and distribution: - Achieving end-to-end scalability requires collaboration with private sector, streamlined onboarding, leveraging KYC-ed client bases (e.g., mobile operators), and likely cloud access for distributors. - Offline payments could help scalability and inclusion but technology not yet production-ready for mass adoption. - Cybersecurity readiness: - BoN cybersecurity staffing: "currently four cybersecurity staff". - SOC monitors BoN network during working hours/days; regional information sharing exists. - Gaps identified: - Lack of a consistent BoN cyber awareness program for commercial banks and customers. - No national platform to actively share cyber-attack incidents and guidelines for financial sector. - NAMFISA lacks legal mandate to enforce cybersecurity on nonbanks; risk-based framework not legally enforced. - Cyber Council nascent; formulating strategy and CERT for the financial sector. - Recommendations: expand cyber SOC to 24/7/365, establish cyber information sharing platform, incorporate cyber supervision for nonbanks, and strengthen legal framework for cybercrime and data protection. - Legal foundations: - BoN Act definitions limit "currency" to “notes and coins”; Section 4(2)(b) to "issue currency" conflicts with Section 1 definition. - Key BoN Act sections reference banknotes and coins explicitly (Sections 37(2), 38(1), 39(a), 40, 41, 42, 43, 45(1), 80). - Account-based rCBDC would require explicit power for BoN to open accounts for the general public (current BoN Act allows accounts for government and banking institutions only). - Legal tender, monopoly of issuance, cours forcé, and criminal protection provisions would need amendment to cover digital currency forms. - Private law issues for token-based rCBDC: legal categorization, transfer/custody/security interests, intermediary relationships, holder protection on intermediary insolvency. - Payment law and PSP regulation would need review to ensure licensing and supervision cover rCBDC-related services. - CMA implications: - CMA Articles and agreements impose possible restrictions and require coordination (Article 2 and Article 7 referenced); cross-border rCBDC would require CMA and contracting party legal reviews and convergence on finality rules, data sharing, exchange control, and capital flow management. - Governance and project management: - Recommendation to adopt 5P methodology (Preparation, Proof-of-concept, Prototypes, Pilots, Production) with predetermined go/no-go governance decisions. - Draft roadmap focuses on Preparation phase with short-, mid-, and long-term milestones and cross-phase stakeholder engagement. ### Key recommendations (summary and roadmap priorities) - Do not pursue advanced, resource-intensive rCBDC experiments until a compelling rationale and clear objectives are established. - Priority: High; Timeframe: MT (establish compelling rationale for rCBDC to address payments challenges). - Continue monitoring global CBDC developments and build internal capacity without heavy resource diversion. - Priority: Medium; Timeframe: MT. - Continue stakeholder engagement with banks, nonbank PSPs, government agencies, and the public. - Priority: Medium; Timeframe: MT. - Prioritize non-CBDC alternatives and payment system improvements: - Enable nonbank PSP direct participation in key payment systems, assess risks (liquidity, credit, settlement). - Priority: High; Timeframe: MT. - Promote payment interoperability via open global standards to reduce fragmentation and costs. - Priority: High; Timeframe: LT. - Ensure IPS can provide immediate settlement in central bank money and increase TCIB participation for cross-border retail payments. - Priority: High; Timeframe: LT. - For financial inclusion: - Evaluate whether rCBDC unique design options (offline payments, programmability, zero-cost transactions) can bring extra value relative to IPS and open-loop e-money. - Priority: Medium; Timeframe: MT. - Support PSPs serving underserved segments with incentives, regulatory relief, and financial literacy, including USSD solutions for offline users. - Priority: Medium; Timeframe: LT. - Macro-financial mitigation: - Conduct detailed macro-financial analysis and design measures (holding limits, remuneration, tiering) to limit risks of bank disintermediation. - Priority: High; Timeframe: MT. - Strengthen liquidity forecasting and management; operationalize emergency liquidity assistance. - Priority: Medium; Timeframe: MT. - Collaborate with CMA central banks to mitigate currency substitution risks and review FX reserve coverage requirements. - Priority: Medium; Timeframe: MT. - Foundational readiness: - Institutional capacity: develop in-house CBDC expertise; ensure resource allocation does not hinder urgent reforms. - Priority: High; Timeframe: MT. - Technology readiness: pursue PPPs and development partner engagement to address digital/power infrastructure; support National Digital ID development; review data localization rules. - Priority: High; Timeframe: MT. - Cybersecurity: review regulations, establish sector-wide cyber information sharing, and strengthen SOC capabilities to 24/7/365. - Priority: High; Timeframe: ST. - Legal framework: amend BoN Act and related monetary law provisions to cover digital currency issuance, legal tender, monopoly of issuance, and criminal protections; review payments and private law for token-based designs. - Priority: Medium; Timeframe: MT. - Roadmap actions (draft): - Near term (<12 months): produce assessment report on rCBDC value vs other payment systems; assess IPS after launch; develop success metrics; join BIS/IMF CBDC projects; form SA-Namibia task force; initiate user studies. - Mid term (12–24 months): produce position paper on monetary policy impacts and a potential digital rand; report on programmability and tokenization; public consultations; partnerships for financial literacy and digital infrastructure funding. - Long term (>24 months): continue literacy and digitalization efforts; establish enabling legal/regulatory framework; determine timing for technology tests and incentive schemes. - Cross-phase: engage private sector to identify participation incentives and ensure roadmap governance with go/no-go decisions. *IMF Technical Assistance Report — Preface and Executive Summary (Bank of Namibia rCBDC exploration mission, January 15–February 1, 2024).* ### Preface ................................................................................................................ ### Preface ### Mission overview - At the request of the Bank of Namibia (BoN), the International Monetary Fund (IMF) conducted technical assistance (TA) from January 15 to February 1, 2024. - Virtual meetings started on January 15 and an onsite mission was conducted from January 23 to February 1, 2024. - The mission assisted the authorities in evaluating value propositions and reviewing foundational requirements of retail central bank digital currency (rCBDC). - The mission helped draft a rCBDC exploration roadmap tailored to the Namibian circumstances and needs. ### Engagement history and team composition - This mission was the third engagement with the BoN on rCBDC. - First engagement: BoN’s participation in a virtual CBDC workshop held by the Central Bank of Lesotho in February 2023. - Second engagement: a 4-day virtual CBDC training workshop in October 2023. - The hybrid mission involved several IMF departments: Monetary and Capital Markets Department (MCM), Information and Technology Department (ITD), and an AFRITAC South (AFS) Financial Market Infrastructure Advisor on-site; Legal Department (LEG), Corporate Services and Facilities Department (CSF), and a Short-Term Expert attended virtually. - The mission met with Deputy Governor Leonie Dunn, multiple BoN departments (Payments and Exchange Control, Monetary Policy, Financial Markets, Financial Stability, Banking Supervision, Strategy Projects and Change Management), Namibian commercial banks, nonbank payment service providers (PSPs), a mobile network operator, and other government agencies and self-regulatory bodies. ### Purpose and next steps - The mission’s findings will serve as input to develop a position paper, which intends to outline the BoN’s policy stance, strategies, and direction of rCBDC issuance. - The mission wishes to thank the authorities for their cooperation, productive discussions, and their hospitality. --- ### Executive Summary ### Context and BoN motivations - The BoN has been exploring the potential of rCBDC to modernize Namibian payment and financial systems. - In October 2022, the BoN initiated a CBDC working group and published a CBDC consultation paper to seek public feedback to BoN’s initial thinking and objectives for rCBDC. - Key drivers for the BoN to explore a rCBDC include promoting financial inclusion, financial system modernization, and improving cross-border payments. - The Common Monetary Area (CMA) CBDC Cluster, established by the BoN and other CMA central banks, jointly evaluated CBDC for enhancing cross-border payments within the region. ### Mission focus - Establishing groundwork for a feasibility study of rCBDC and drafting a rCBDC exploration roadmap. - Analyzing Namibia’s payment systems and financial inclusion; exploring potential value propositions and drawbacks of rCBDC for addressing current gaps. - Analyzing implications of rCBDC for monetary policy and financial stability and evaluating BoN’s foundational requirements. - Drafting a rCBDC exploration roadmap to foster a cohesive and coordinated approach for the BoN and external stakeholders. ### Payments and settlement infrastructure assessment - Namibia’s payment and settlement infrastructure has undergone significant improvement, but key shortcomings remain. - Ongoing initiatives: NamPay to modernize funds transfers and Instant Payment Solution (IPS) to enable real-time retail payments. - Remaining challenges include: - Multiple and high fees of existing digital payments. - Limited interoperability and accessibility between different PSPs. - Inefficiencies in cross-border payments. ### Financial inclusion assessment - Notable progress: as of 2017, around 78 percent of Namibian adults were considered financially included, up from 69 percent in 2011. - Bank account ownership and digital payment usage in Namibia have shown positive trends, surpassing Sub-Saharan Africa’s regional average. - Persistent barriers: limited accessibility to digital infrastructure in rural areas, high digital transaction costs, strong preference for cash, and low financial literacy. ### rCBDC value assessment and mission conclusion - The mission did not find a strong case for issuing a rCBDC at the moment, considering forthcoming payment instruments and improvements. - IPS initiative aims to address affordability and interoperability for domestic digital payments. - Transaction Cleared on an Immediate Basis (TCIB) can enhance cross-border retail payments. - Major commercial banks committed to these initiatives may not have additional resources to support a rCBDC project. - rCBDC potential benefits (offline capability and programmability) rest on untested technologies for large-scale adoption and may pose systemic risks if poorly designed. - Root causes of financial exclusion (inadequate infrastructure, low financial literacy) would not be directly solved by rCBDC; alternative solutions may present more accessible and immediate benefits. - Non-CBDC measures—supporting PSPs catering to underserved segments and improving financial literacy—could be more effective and should be prioritized. ### Macro-financial implications - rCBDC issuance could have significant implications for monetary policy and financial stability, mitigable by careful design and enhanced monetary operations. - For monetary policy: rCBDC could challenge BoN liquidity management, increase short-term market rate volatility, complicate FX reserve management, and potentially diminish alignment between BoN and SARB repo rates if rCBDC is used across borders. - For financial stability: significant substitution from bank deposits to rCBDC could lead to banking disintermediation risk. ### High-level recommendations (summary) - Establish a compelling rationale for rCBDC before resource-intensive exploration; assess benefits/risks of rCBDC and non-CBDC solutions; establish internal policy dialogue for informed decision-making. - Continue stakeholder engagement to stay informed on digital money and payments. - Evaluate existing payment solutions’ roles and rCBDC’s unique design options (offline payments, interoperability, zero-cost transactions) for financial inclusion. - Conduct macro-financial analysis on rCBDC and explore design and operational measures to mitigate risks (e.g., holding limits, strengthen liquidity forecasting and management). - Collaborate closely among CMA central banks to limit currency substitution risk and preserve financial stability. - Address gaps in institutional capacity, digital readiness, and legal foundations if BoN chooses to issue rCBDC in the future: - Continue developing internal expertise while ensuring balanced resource allocation between rCBDC and other alternatives. - Support development of digital infrastructure and regulations (collaborate with government agencies and development partners). - Modify the definition of currency in the BoN Act and review internal policies and governance structure. - If rCBDC used across borders, undertake comprehensive review of CMA agreements and align relevant legislation for convergence. ### Roadmap support - The mission helped draft a roadmap using a design thinking approach; learning goals and milestones categorized into four themes: 1. Evaluate alternative payment methods. 2. Assess macro-financial implications of rCBDC. 3. Continue learning rCBDC design features that can bring extra value. 4. Develop and support initiatives that enable payment digitalization. - Priorities, timeline, and required resources were assigned to each key action item in the draft roadmap. --- ### Recommendations (Key recommendations table summary) - ST: short term: < 12 months; MT: medium term: 12 to 24 months; LT: long term: > 24 months. rCBDC for Payments - rCBDC exploration - Establish a compelling rationale for rCBDC to address challenges in payments with clear objectives, assumptions and planning before embarking on a more resource-intensive exploration such as prototype or pilot (paragraph 31). - Priority: High; Timeframe: MT - Continue monitoring and learning developments in digital money and payments, not limited to CBDCs and engage with relevant stakeholders to gain better insights (paragraph 32-33). - Priority: Medium; Timeframe: MT - Non-CBDC alternative solutions - Reduce regulatory burdens and enable regulatory environments to further support competition and innovation in payments such as supporting nonbank PSPs as direct participants for key payment systems (paragraph 35-36). - Priority: High; Timeframe: MT - Promote payment interoperability by adopting open and globally endorsed standards to eliminate inefficiencies and avoid fragmented payment systems (paragraph 37). - Priority: High; Timeframe: LT - Ensure that IPS can provide immediate settlement in central bank money for domestic payments and increase participation in TCIB for cross-border retail payments (paragraph 38-39). - Priority: High; Timeframe: LT rCBDC for Financial Inclusion - rCBDC exploration - Evaluate how existing payment solutions can address barriers to financial inclusion and what additional values of rCBDC can uniquely bring to bridge the remaining gaps, such as exploring offline capability of rCBDC (paragraph 52-53). - Priority: Medium; Timeframe: MT - Continue engaging with public and private stakeholders to explore adoption incentives and further promote financial literacy education (paragraph 54). - Priority: Medium; Timeframe: MT - Non-CBDC alternative solutions - Provide further support to payment service providers catering to underserved segments by offering incentives and alleviating regulatory burdens and strengthen efforts to enhance consumer protection and financial literacy (paragraph 55-57). - Priority: Medium; Timeframe: LT rCBDC’s Implications for Monetary Policy and Financial Stability - Assess the macro-financial implications of rCBDC; together with rCBDC design options to limit risks (paragraph 78). - Priority: High; Timeframe: MT - Further strengthen capacity to forecast and manage liquidity and collaborate with other CMA central banks to mitigate the risks of currency substitution and to revise the CMA’s requirements for FX reserve coverage (paragraph 79-81). - Priority: Medium; Timeframe: MT Foundational Requirements - Institutional capacity. Continue develop internal expertise regarding CBDCs. Ensure that the financial and human resources allocated for the CBDC project do not hinder existing, more urgent reform initiatives (paragraph 109-111). - Priority: High; Timeframe: MT - Technology readiness. Influence discussions and collaboration with respective Namibian agencies to explore the public private partnership (PPP) and engage with development partners to address the gaps in digital and power infrastructure. Support the development of the National Digital ID system. Review specific regulation about data localization requirements (paragraph 112-116). - Priority: High; Timeframe: MT - Cybersecurity readiness. Take further measures and review relevant regulations to ensure effective cyber risk management. Establish and promote the cyber information sharing platform for the financial sector (paragraph 117-118). - Priority: High; Timeframe: ST - Legal foundations. Modify the definition of currency in the BoN Act if rCBDC is issued. Undertake a comprehensive review of the CMA arrangements if rCBDC is used cross-border (paragraph 119-123). - Priority: Medium; Timeframe: MT Roadmap - Continue refine the draft of the roadmap and engage with other internal departments and external stakeholders to ensure consistencies in policies, resource allocation and timelines (paragraph 136). - Priority: High; Timeframe: ST --- *IMF Technical Assistance Report — Preface and Executive Summary (Bank of Namibia rCBDC exploration mission, January 15–February 1, 2024).* ### 1. Central bank digital currency (CBDC) has been a subject of interest for central banks in ### tarea2025016-print-pdf - 1. Central bank digital currency (CBDC) has been a subject of interest for central banks in ### CBDC interest and regional experience - According to a 2023 IMF survey of Sub-Saharan countries, more than 75 percent of surveyed countries are currently exploring CBDC, with improving financial inclusion and domestic payment efficiency as top motivations. - Two-thirds are in the research phase (for example, Eswatini, Lesotho) whereas others are at an advanced stage or already plan to complete CBDC pilots within the next few years. - Nigeria became the second country (after Bahamas) to launch its retail CBDC (rCBDC), eNaira, in October 2021. - South Africa: exploring wholesale CBDC under Project Khokha; partnering with Australia, Singapore, and Malaysia to develop prototypes for international CBDC settlements under Project Dunbar. - Ghana: engaged with a private technology vendor to pilot a rCBDC, eCedi. - Kenya: stated CBDC is not a compelling short- or medium-term priority after issuing a discussion paper on CBDC. - Overall: technical, capacity, and legal challenges are key concerns for regional central banks pursuing and operating a CBDC. ### Bank of Namibia (BoN) CBDC exploration and coordination - Exploring rCBDC is part of efforts to modernize Namibia’s financial system. - An inter-departmental BoN working group has explored and researched CBDC since 2022. - October 2022: BoN published a consultation paper on CBDC to seek public opinions. - CMA coordination: a CMA CBDC Cluster and Project Sunbird were formed under CMA governors to investigate CBDC use cases for cross-border payments in the CMA region. - BoN intends to share and consult any CBDC policy decisions with the CMA CBDC Cluster given close CMA economic ties. - The report’s organization: Section II analyzes rCBDC value proposition for payments; Section III analyzes rCBDC value proposition for financial inclusion; Section IV evaluates macro-financial implications; Section V discusses foundational requirements; Section VI outlines a draft roadmap; Section VII concludes. ### Assessment objective for rCBDC in Namibia - Purpose: assess rCBDC’s value propositions for improving payments in Namibia by examining current payment infrastructure and remaining challenges, and by comparing rCBDC and alternative solutions. - Note: assessment is not an evaluation of Namibia’s payments in the PFMI context, but an analysis of potential rCBDC value propositions in Namibia’s context. ### Payments and settlement infrastructure — overview and key FMIs - National Payment System (NPS) components: - RTGS: Namibia Interbank Settlement System (NISS). - ACH: Namibian Clearing House (NamClear). - NPS includes electronic funds transfer services, card services, and electronic money for domestic and international payments. - RTGS and ACH designated as systemically important FMIs in 2018 and required to adhere to PFMI. - Inter-regional cross-border transactions facilitated through SADC-RTGS. - Namibia has not yet established a Securities Settlement System (SSS) or a Central Clearing Counterparty (CCP); a project is underway to implement a Central Securities Depository (CSD). ### Namibian Interbank Settlement System (NISS) — operations and statistics - NISS is an RTGS providing final and irrevocable settlement for domestic high-value interbank payment transactions. - Risk management: collateralized lending via overnight and intra-day lending facilities. - Aggregate settlement value recorded in NISS in 2023: N$1,205.2 billion (around 5 times of GDP). - Total volume in 2023: 93,056 transactions, averaging 319 transactions per settlement day. - Over the past five years, average annual growth of aggregate value settled in NISS: 5.7 percent. - Over the past five years, average annual growth of volume settled in NISS: 9.5 percent. - NISS ownership and governance: owned and operated by the BoN; National Payment System Department operates and oversees NISS with two divisions: Settlement System Operations Division and Policy and Oversight Division. ### Namibian Automated Clearing House (NamClear) — operations and statistics - NamClear: ACH providing clearing for domestic interbank transactions; processes all interbank EFT and card payments settling in NISS and is the only infrastructure that provides interbank clearing services. - Total value of interbank transactions cleared through NamClear in 2023: N$431 billion, representing 35.7 percent of the aggregate value settled in NISS. - 2023 component values: - EFT (debit and credit): N$388 billion. - Card payment transactions: N$43 billion. - Intrabank transaction values in 2023: - EFT intrabank transactions: N$839 billion. - Card transactions between merchants and customers: N$58 billion. - Intrabank electronic money (e-money) transactional value: N$38 billion in 2023. ### SADC-RTGS for cross-border payments - SADC RTGS: regional settlement system for time-critical or high-value payments between SADC countries; operated by the South African Reserve Bank; ownership remains with SADC central bank member countries. - System operates currently on a prefunded basis in South African rand; discussions ongoing to include other currencies such as the US dollar as a settlement currency. - Participation: 15 of the SADC 16 member countries participated in SADC RTGS. - Participants historically included central and commercial banks; SADC PSOC recently broadened access and participation criteria to nonbank payment service providers (PSPs). - Five out of the 90 SADC RTGS participants are from Namibia; nonbank PSPs are among the five participants. - March 2024: total value of payments processed in SADC RTGS reached R210 billion, with Namibian banks accounting for 24 percent. ### Regulation and oversight of payment and settlement infrastructure - Payment System Management Act of 2023: - Outlines establishment, management, administration, operation, regulation, oversight, and supervision of payment, clearing, and settlement systems in Namibia. - Stipulates BoN powers and functions to ensure safe, secure, efficient, and effective operation of NPS and promotion of NPS accessibility by the public. - Provides requirements on licensing and authorization of payment instruments, PSPs, and payment system operators, and regulatory framework development for issuance of electronic money. - BoN applies a risk-based approach to oversight through on-site and off-site activities, including assessments and information collection from regulated institutions. - BoN’s legal basis: derives regulatory power from the Bank of Namibia Act 1 of 2020 and payment operations and oversight power from the Payment System Management Act of 2023. - Payments Association of Namibia (PAN): - Serves as an integral governance structure; delegated regulatory authority to license and oversee PSPs was rescinded and reformulated to act as a collaborative platform for members. - Mandate includes developing and administering technical standards and rules for member participation within payment systems. - BoN participates in SADC PSOC, which provides cooperative oversight to manage and mitigate cross-border settlement and systemic risks under the SADC PSOC Memorandum of Understanding. ### Retail payments landscape — participants and service provision - NPS participants: seven banking institutions, 21 nonbank PSPs, and the BoN. - Retail payment systems include EFT (internet banking, mobile banking, debit order collections), card system (debit, credit, hybrid cards), and e-money. - Cheques decommissioned as payment instruments since June 2019. - Commercial banks dominate provision of payment instruments and services: - Banks are the only service providers of EFT and card systems, except Namibia Post Limited (NamPost), a nonbank PSP that participates in the card system and accepts deposits. - Only banks participate in clearing and settlement and provide sponsorship arrangements for some nonbank PSPs. - Nonbank PSPs have limited incentives to enter clearing and settlement infrastructure. - Only four major banks offer an acquiring network of Point of Sale (POS) devices to merchants. ### E-money adoption and interoperability - Eight e-money issuers: four banks and four nonbank PSPs. - Bank e-money services: allow users to send funds to individuals without bank accounts, purchase value-added services, and withdraw at designated channels. - Nonbank e-money services: niche, limited to specific purposes (e.g., purchases of fuel, students). - E-money expanded to multiple use cases (utility bills, insurance) but not fully interoperable; closed-loop systems limit uptake. ### Fees, access, and cash preference - Domestic payment transactions incur multiple and generally high fees. - ATM usage: many Namibians depend on ATMs to access cash; fee structures for withdrawals vary across banks and are complex. - Limited ATM network increases dependency on single ATMs and use of other banks’ ATMs is difficult and costly. - Fees charged for all debit order payments to third party accounts; only one bank provides the service free of charge. - Near-real time credit transfer fees significantly higher than ordinary credit transfers. - Debit card purchases entail fees; only one bank offers it free of charge. - Other fees: purchasing airtime, electricity, and other prepaid services; e-money fees vary by transaction type. - Cross-border retail payment costs: - World Bank database: average transaction cost of sending cross-border remittances to Namibia was more than 19 percent in 2020 — the third highest in Sub-Saharan Africa and the fourth highest in the world. - Cash preference: - BoN’s Consumer Payment Choice and Behavior Survey in 2023 (sample of 600 respondents across seven towns): 84 percent of respondents preferred cash for paying for goods and services; card payments (debit and credit cards) are the second most preferred. - Cash perceived as safe, affordable, and convenient with no transaction cost; used for daily payments, while cards and e-wallets used for monthly payments via nearby ATMs. - Cash remains favored for government social grants, especially by pensioners, increasing cash management expenses and likelihood of payment errors. ### New developments and payment system projects - Namibia National Payment System Vision and Strategy 2025 highlights four strategic themes: Funding and Governance; Collaboration for ecosystem Resilience; Consumer-Centric Innovation; Human Resource Capacity Development. - Key initiatives to meet objectives include introduction of NamPay, development of IPS, and enhanced adoption of TCIB for cross-border retail payments within SADC. - NamPay: - Objective: modernize payment system by enhancing EFT environment and implementing ISO 20022 messaging standards. - Jointly undertaken by BoN, NamClear, and PAN; participants include commercial banks and nonbank PSPs. - Replaced existing payment streams and created: - Enhanced Debit Orders (EnDO): lowers incidence of fraudulent debit order processing and applies a randomization mechanism to ensure even ability to collect funds. - Enhanced Credit Transfers (EnCR): enables batch and bulk transfers. - Near Real Time Credit Transfers (NRTC): speeds processing times of payments and makes interbank payments near instantaneous. *IMF Technical Assistance Report — excerpts as provided in source content.* ### 21. The BoN is developing IPS to enhance financial inclusion and digitalization. The IPS aims to ### 21. The BoN is developing IPS to enhance financial inclusion and digitalization. The IPS aims to ### IPS and TCIB: current initiatives and features - The IPS (Interoperable Payment System) is being developed to: - modernize the payment system by developing an interoperable mechanism to enable integration and collaboration across banks and nonbank PSPs. - enable real-time transaction processing and provide seamless integration with both domestic and regional payment ecosystems. - allow for 24/7 availability. - The BoN has called for vendors to bid for the IPS development project and is finalizing the selection. - Namibia has joined TCIB for cross-border retail payments within the SADC region. - TCIB is a cost-effective, interoperable clearing house solution designed for high volume, low value, and near real-time cross border payments. - TCIB is designed to be an instant payment solution available on a 24/7/365 basis. - TCIB provides netting of low value cross-border transactions; settlement of obligations occurs in the SADC-RTGS in batches. - TCIB allows participation from both banks and nonbank PSPs but participants are subject to approvals by their domestic regulators. - Namibia was among the first group of participants of TCIB, but overall adoption rate has remained low. ### Value propositions of rCBDC for payment systems - rCBDC could become an instant and affordable retail payment and settlement system in central bank money accessible to different types of PSPs. - IPS would function at a commercial bank money level; rCBDC would not need to rely solely on commercial bank accounts to operate. - rCBDC users could make instant and affordable payments in central bank money across any digital payment products and services under one system. - To make rCBDC publicly affordable, risk-free and accessible, an appropriate pricing and cost-sharing model must be carefully investigated because rCBDC operation would involve PSPs in a two-tier model. - The model should provide sufficient business-viable incentives for PSPs to operate rCBDC services, or the BoN could consider cost-subsidy to ensure rCBDC can serve as a public payment rail. - rCBDC could enhance resiliency of payments. - Digital payment services in Namibia are dominated by commercial banks; rCBDC could serve as a backup payment system in case digital payments are disrupted. - Cash remains the most used and publicly accessible means of retail payment and can already serve as a back-up payment instrument in case of disruption. - rCBDC could enhance digital payments and interoperability. - Lack of interoperability among different payment systems currently compels users to cash out for payments, incurring additional withdrawal fees. - In geographically dispersed rural areas, unavailable or limited connectivity hinders widespread adoption of digital payments; expansion of digital infrastructure and continued availability of cash are imperative. - rCBDC could unify and interoperate various digital payment methods from different providers within a singular payment system, potentially enhancing affordability for PSPs and users and motivating users to transition away from cash. - Cross-border rCBDC use could improve remittances. - rCBDC could allow instant money transfers from wallet to wallet residing in different countries. - Cross-border rCBDC exploration requires strong multinational regulatory agreements among collaborating nations to mutually accept rCBDCs issued by different central banks. - The roles and coordinated development of TCIB would need to be taken into account, since TCIB is designed to serve a similar function for the SADC region. - rCBDC could support financial innovation as an open and programmable platform. - rCBDC could enable access to APIs and development tools, allowing developers and PSPs to create applications or services atop the rCBDC infrastructure. - Trade-offs between data use and privacy protection, as well as cyber security, must be carefully considered; proper regulations to ensure consumer protection and cyber resilience should be in place and enforceable. - rCBDC could increase efficiency, transparency, and accuracy in government payments. - Namibia’s e-government development remains lagging in terms of utilization and adoption of digital solutions per the United Nations’ e-Government Development Index (EGDI). - Majority of social grant distributions rely on cash payments; rCBDC can be designed to be programmable and automatically execute conditional payments upon fulfillment of specific criteria, enhancing transparency. - Offline functionality would be important for grant recipients living in rural areas with unstable connectivity. ### Assessment and principal conclusion - The mission did not find a strong case to issue rCBDC in Namibia at the moment. - rCBDC could potentially bring benefits for domestic payments and remittances, but benefits must be weighed against risks and costs of developing and operating rCBDC and alternative solutions. - Building a publicly accessible rCBDC would be a highly resource-intensive project requiring long-term commitments from both the BoN and market participants. - Many commercial banks have already allocated resources to the IPS initiative and have voiced concerns about the shortage of skilled labor; soliciting their participation in an additional payment project would exacerbate existing challenges. - Key promising features of rCBDC, notably offline functionality and programmability, hinge on technologies still in the experimental phase; if not meticulously designed and cautiously implemented, they could pose significant risks. ### Non-CBDC alternative solutions and comparative advantages - Non-CBDC alternatives may demand less time and resources compared with rCBDC. - For domestic payments, the ongoing IPS initiative targets affordability and interoperability of digital payments and can leverage high levels of bank account ownership to provide interoperable account-to-account payments. - For remittances, TCIB can be further supported to enhance usage for cross-border retail payments. - Beyond new infrastructures, policy and regulatory measures can address identified gaps within the payment landscape. - Non-CBDC solutions and rCBDC exploration are not mutually exclusive and can be pursued concurrently; a more robust payment infrastructure would facilitate potential future rCBDC issuance. ### Key recommendations (rCBDC exploration) - Establish a compelling rationale before resource-intensive exploration: - Do not pursue advanced technological exploration beyond proof-of-concept until tangible benefits of CBDC for payments are evident and a comprehensive framework of objectives and use cases is firmly established. - Clarify objectives, assumptions, and planning before embarking on prototype or pilot. - Investigate both rCBDC and non-CBDC solutions to evaluate merits and drawbacks to inform internal policy dialogue and decision-making. - Continue monitoring and learning global developments: - The BoN should keep abreast of global developments in CBDCs and digital payments without heavily investing in resource-intensive experiments. - Build internal capacity by dedicating staff to monitor or conduct research or participating in relevant training programs. - Engage with stakeholders: - Continuous communication with banks, nonbank PSPs, other policymakers, and the public will help the BoN understand evolving perspectives and needs for digital money and payments in Namibia. ### Key recommendations (non-CBDC alternatives and payment system improvements) - Reduce regulatory burdens to enable nonbank PSPs as direct participants while assessing associated risks. - Direct participation could enhance competition and innovation, reduce intermediaries, and lower operating costs; BoN should assess liquidity, credit, and settlement risks to ensure safety and soundness. - Enable a regulatory environment and open platforms to support competition and innovation. - Foster entry of new service providers and incorporate emerging solutions such as open banking to diversify products and services. - Promote payment interoperability by adopting open and globally endorsed standards. - Address current closed-loop proprietary technology platforms used by commercial banks that limit interoperability and increase costs. - Ensure IPS can provide immediate settlement in central bank money. - The Expression of Interest for IPS supply and implementation refers to real-time processing and switching but does not refer to immediate settlement. - The design of IPS should provide for final and irrevocable settlement of instant payment transactions, allowing PSPs to use liquidity in a central bank account to settle payments instantly. - Increase participation in TCIB for cross-border retail payments. - TCIB’s adoption remains low; some banks prefer SADC RTGS for cross-border retail transactions. - BoN should consult banking participants to develop a system that reduces cost and increases transaction speed; consider regulatory intervention to mandate participation if TCIB is identified as optimal. - Strengthen collaboration and stakeholder engagement for NPS developments. - BoN’s lead approach to NPS developments may prioritize policy objectives but risks diminished industry participation and adoption. - Adopt a collaborative strategy with continuous engagement of industry stakeholders and consumers to mitigate unintended consequences and ensure widespread involvement and early adoption. ### Evaluating rCBDC’s value propositions for financial inclusion — assessment and key statistics - Overview findings: - Namibia has seen positive changes in financial inclusion, with high banking account ownership and growth in digital payments. - 2017 Namibia Financial Inclusion Survey (NFIS) by Namibia Statistics Agency: around 78 percent of Namibian adults were financially included, up from 69 percent in 2011 and 49 percent in 2007. - World Bank Global Findex: account ownership in Namibia increased rapidly from around 60 to over 81 percent from 2014 to 2017, which then dropped slightly to 71 percent in 2021. - World average: 76 percent - Regional average (Sub-Saharan Africa): 55 percent - Digital payments: 66 percent of adults in Namibia made or received at least one digital payment in 2021, increasing from 45 percent in 2014. - Regional average: 49.5 percent - World average: 64 percent - Remaining gaps and challenges: - Rural-urban and income gaps: - 65 percent of rural area residents have an account, compared with 82 percent in urban areas. - The portion of adults in rural areas making digital payments is 20 percent lower than in urban areas. - Data shows gaps between lower and higher income groups widened from 2017 to 2021 by both account ownership and digital payment measures. - SMEs: around 42 percent still face challenges accessing credit. - Legal and infrastructure constraints: - Lack of a data protection law and absence of a national digital ID scheme may hinder adoption of digital payments. - The Namibian government is drafting a data protection policy and considering introducing digital IDs. - EGDI benchmark: - As of 2022, Namibia’s EDGI stands at 0.5322, above the African region’s average at 0.4054, but below the world’s average at 0.6102. *Source: tarea2025016-print-pdf (IMF Technical Assistance Report).* ### 44. Challenges remain for all stakeholders and deter financial inclusion in Namibia. ### 44. Challenges remain for all stakeholders and deter financial inclusion in Namibia. ### Key challenges by stakeholder - Residents - Cash remains the dominant preferred payment method: 84 percent of respondents prefer cash; credit and debit cards 32 percent; e-money 6 percent; cellphone banking 4 percent; mobile apps 1 percent. - Contributing factors: large informal sector (accounts for almost 25 percent of Namibia’s GDP and over half of the country’s employment), high fees for digital payments, increase in card fraud, language barriers, and low financial literacy. - Infrastructure - Unstable or limited internet connectivity, relatively low smartphone penetration, and electricity shortage—especially in rural areas—undermine access to financial services and adoption of digital payments. - Payment Service Providers (PSPs) - Sparse population distribution reduces incentives for major financial institutions to expand services to unbanked/underbanked populations because cash management and transportation costs in remote/rural areas are high while market size is small. - Banks exhibit low risk appetite for lending to small businesses. - Many PSPs adopt closed-loop designs (for example, e-money) to retain user bases, causing interoperability issues and sub-optimal user experience. - Merchants - Merchants' payment preferences: 76 percent prefer cash; 13 percent prefer EFT; 7 percent prefer e-money; 4 percent prefer cards. - Merchant reluctance to accept digital payments linked to high acceptance fees and tax avoidance motives, particularly in rural areas. - SMEs - Main obstacles to credit access: lack of appropriate collateral, limited credit track records and financial statements for credit evaluation, and low levels of skills and business training. ### Demographics and past initiatives - Demographics - Namibia has a large young population: half of its 2.6 million population is below the age of 24. - Younger cohorts are more open to digital technology and digital payment methods; younger pensioners are more open to digital payments than older generations. - Government and policy initiatives - Namibia Financial Sector Strategy (10-year development strategy covering 2011 to 2021) identified financial inclusion as one of five reform areas, focusing on consumer financial literacy, protection, and expanding access to financial services and products. - Credit Guarantee Scheme launched in 2020 during the pandemic to address SMEs’ access to finance; part of the SME Financial Strategy by BoN, Development Bank of Namibia, and the Ministry of Finance. - Uptake and impacts of financing programs need close monitoring. ### Potential value propositions of rCBDC for financial inclusion - Market competition and innovation - As an open and programmable platform, rCBDC could promote market competition and facilitate development of innovative financial services by offering a level playing field and lowering costs for PSPs to access infrastructure. - rCBDC could be designed to facilitate interoperability across services and technologies, enabling PSPs to expand into underserved markets. - Accessibility and affordability - rCBDC could allow individuals to open rCBDC digital wallets and transact without owning bank accounts, simplifying access to digital financial services and potentially lowering costs by reducing intermediation and eliminating minimum balance requirements. - Offline functionality - Offline rCBDC payments could enable populations in areas with poor network coverage to access financial services; example cited: China’s e-CNY offline pilot using SIM/NFC and stored-value smart cards. - Technology for large-scale, stable, and risk-managed offline payments is at an early stage and requires more research. - Building financial history - rCBDC transaction data could help underserved individuals or SMEs establish financial history and enable lenders/insurers to evaluate financial behavior for credit decisions. - Privacy and data protection considerations: rCBDC systems should enable user consent for data sharing. ### Recommendations — overall assessment - General finding - The case for rCBDC to address financial inclusion in Namibia depends on tackling root causes of exclusion. rCBDC may address some challenges but does not offer a unique value proposition at this juncture and would not, by itself, resolve issues such as digital infrastructure constraints and deficiencies in financial literacy. - Comparative analysis - The BoN should compare and evaluate the roles of existing payment solutions (for example, IPS and open-loop e-money solutions) and rCBDC in addressing financial inclusion challenges (high fees, lack of interoperability, connectivity issues). - The BoN may collaborate with the Namibia Statistics Agency to access up-to-date data and enable data-driven policy decisions. ### Recommendations — rCBDC exploration and design options - Explore design options with adequate technology maturity, including: - Offline payment to support rural and low connectivity areas and users without smartphones; define appropriate level of offline functionality and use cases. - Programmability to facilitate innovative financial services for underserved markets. - Affordability to support zero transaction cost (cash-like) for merchants and users; explore fee structure, incentive models, and financial sustainability of an rCBDC ecosystem. - Stakeholder engagement - BoN should continue engagement with public and private stakeholders (for example, banks, merchants, end-users) early to identify incentives for participation in an rCBDC system and consider information sessions and online campaigns to share CBDC exploration plans, public consultation results, and analyses of benefits and risks. ### Recommendations — non-CBDC alternatives and supporting measures - Parallel non-CBDC options - Non-CBDC solutions can be explored in parallel; they are not mutually exclusive with rCBDC exploration. - Support to PSPs - Provide incentives and alleviate regulatory burdens for PSPs serving underserved segments; examples include tax incentives/subsidies for expanding services or reducing regulatory burdens. - Support open-loop e-money solutions and USSD-powered transactions for users without internet connections to lower merchant acceptance costs. - Consumer protection and financial literacy - Strengthen consumer protection guidelines and financial literacy efforts in collaboration with PSPs and partners such as Ministry of Finance, NamPost, and MTC. - Develop a national baseline to measure progress toward consumer education and integrate financial literacy into the formal education curriculum. ### Macro-financial implications and monetary policy considerations - Monetary policy and liquidity management - rCBDC could pose challenges to liquidity management and increase volatility in short-term market rates because rCBDC demand may be more volatile than cash demand. - Mitigation options: improved liquidity forecasting with richer data, conducting liquidity operations at a fixed rate with full allotment, implementation of eligibility rules and holding limits, and potential remuneration of rCBDC. - FX reserve management - CMA requirement for full reserves backing of physical currency would presumably apply to rCBDC, potentially making BoN’s FX reserve needs more volatile and mirroring liquidity effects. - If rCBDC is used for cross-border payments or held by non-residents, capital account openness could increase and reduce policy discretion vis-à-vis the SARB. - Remuneration and transmission to market rates - rCBDC remuneration could provide BoN a new policy tool to influence bank interest rates; however, the benefit in Namibia may be limited given current pass-through adequacy. - Practical challenges: setting a remuneration rate high enough to affect deposit rates but not so high as to cause deposit disintermediation; central banks may prefer non-remuneration or minimal remuneration with tiering to mitigate disintermediation risk. - Relevant numeric context - BoN’s repo rate is currently at 7.75 percent, 0.5 percentage points below the SARB’s repo rate. *IMF Technical Assistance Report — chapter: Challenges remain for all stakeholders and deter financial inclusion in Namibia.* ### 67. Potential benefits from rCBDC data use and rCBDC as an unconventional monetary policy ### 67. Potential benefits from rCBDC data use and rCBDC as an unconventional monetary policy tool at the effective lower bound are of limited relevance in Namibia ### Potential benefits from rCBDC data use and unconventional monetary policy - rCBDC could offer detailed insights into payment transactions, enriching data available for economic analysis. - Practical benefits for shaping Namibia’s monetary policy are constrained because Namibia adheres to a FX peg and aligns its monetary policy with SARB rather than tailoring policy to its own economic conditions. - Unconventional tools (e.g., helicopter drops, conditional payments) could be beneficial when the central bank needs to stimulate the economy if the policy rate is at the effective lower bound. - The effective lower bound has not been a binding constraint in Namibia, and such tools can be implemented via other payment instruments, not necessarily via rCBDC. ### rCBDC and monetary sovereignty - rCBDC could help safeguard monetary sovereignty, preserving the central bank’s ability to: - effectively conduct monetary policy; - act as a lender of last resort; - collect seigniorage; - maintain the Namibian dollar as a symbol of national identity. - Some central banks worry that global stablecoins or foreign CBDCs could lead to currency substitution and undermine central bank functions if widely used. - Namibia’s ability to pursue independent monetary policy has already been limited due to the fixed exchange rate regime. - Other supporting rationales for BoN consideration of rCBDC include maintaining seigniorage, lender-of-last-resort capacity, and national identity considerations. ### Financial stability — overview and key statistics - As of January 2024, nine banks were licensed in Namibia: seven commercial banks, a branch of a foreign bank, and a representative office. - Four large banks (three subsidiaries of South African banks) hold more than 90 percent of total banking assets. - More than half of bank loans are directed to residential and commercial mortgages. - Around 70 per cent of banks’ total liabilities are deposits. - 30 percent of the total deposits are demand deposits, while the rest is interbank funding. - Banking sector profitability improved from 2.4 percent in 2020 to 19.8 percent in 2022. - The deposit insurance scheme (in place since February 2020) has a maximum compensation amount of N$ 25,000 (roughly $13,000), covering more than 90 percent of depositors. - The Banking Institutions Act came into effect in 2023, granting the BoN full banking resolution powers; the banking resolution framework has not yet been finalized. - Approximately 48 percent of Namibians live in rural areas. ### Potential financial stability implications of rCBDC - Bank disintermediation risk: - Wide adoption of rCBDC could cause a significant shift from commercial bank deposits to rCBDC (as opposed to physical cash), leading to a decline in bank deposits. - Commercial banks might seek alternative, potentially more costly, funding sources and raise their liquidity coverage ratios. - Decline in deposits and higher funding costs could reduce credit provision and/or raise the price of banking credits, adversely impacting the real economy. - BoN footprint and balance-sheet implications: - Shift from bank deposits to rCBDC would require the BoN to engage in greater maturity, liquidity, and credit risk transformation depending on assets held to accommodate issued rCBDC. - BoN could have more significant influence on lending and financial conditions if it undertakes extended roles. - Current excess liquidity may limit aggregate effects, but: - rCBDC substitution could escalate over time, impacting bank and BoN balance sheets. - In a fragmented market, substitution could affect individual banks differently, necessitating BoN liquidity support to liquidity-constrained banks even if system-wide liquidity remains in surplus. - Run risk in times of distress: - rCBDC may be perceived as a safe-haven asset, potentially facilitating rapid and widespread systemic bank runs. - While individual bank runs (shifting deposits from troubled banks to more stable ones) are unlikely to be exacerbated by rCBDC, systemic runs could be simplified depending on rCBDC design. - Design features (e.g., eligibility criteria, holding limits) can help limit these risks. - Bank resolution and deposit insurance: - Because resolution frameworks and the deposit insurance scheme are recently established and not fully implemented, issuing rCBDC now could increase bank run risk. - Strong, trustworthy, and well-known bank resolution frameworks and deposit insurance would reduce incentives to run during elevated risk aversion. ### Recommendations for the Bank of Namibia (BoN) - Assess implications and limit downside risks: - Conduct further cost-benefit analysis and explore alternative solutions that could achieve rCBDC objectives with fewer macro-financial risks. - Recognize that mitigation design features (holding/transaction caps, remuneration) may reduce rCBDC adoption and limit objective fulfillment. - Strengthen liquidity forecasting and management: - Enhance capacity to forecast and manage liquidity; reassess daily liquidity forecasting framework to ensure market operations can stabilize short-term rates and facilitate policy transmission. - Operationalize emergency liquidity assistance and reinforce the collateral framework. - Collaborate regionally: - Collaborate with other CMA central banks to jointly mitigate currency substitution risks and to revise the CMA’s requirements for FX reserve coverage. - If SARB issues a rand rCBDC, the potential for currency substitution could intensify in CMA countries, including Namibia. - Emergence of stablecoins and foreign CBDCs could further increase currency substitution risk; close CMA collaboration would be necessary. - Enhance public awareness: - Improve public awareness and trust in the deposit insurance scheme and the banking resolution framework to mitigate financial stability risks from potential bank disintermediation. ### Foundational requirements — assessment Institutional capacity - rCBDC issuance and operation are resource-intensive and could lead to operational and reputational risks; BoN should build capacity and resources to manage these risks. - BoN CBDC working group: - Established in 2022 with 18 members from corporate strategy, digital transformation, IT, banking supervision, communication, and legal departments. - None are committed full-time to the project; the group convenes on an as-needed basis. - Strategy Projects and Change Management department serves as project management officer for CBDC exploration. - Some members participate in the CMA CBDC Cluster for cross-border CBDC exploration. - Resource needs: - High upfront investment costs for infrastructure, operations, maintenance, and monitoring. - Need for staff with expertise in technology, payments, law, communication, and risk management. - Large-scale rCBDC operation requires 24/7 instant payments capability, demanding sufficient skilled resources and timely responsiveness. - International comparators (number of central bank staff engaged in CBDC projects at end of 2021): - Central Bank of the Bahamas: 15 - Bank of Canada: 50 - People's Bank of China: 300 - Eastern Caribbean Central Bank: 12 - Sveriges Riksbank (Sweden): 20 - Banco Central de Uruguay: 0 (10 during pilot) PSP endorsement and capacity - Banks and nonbank PSPs must upgrade technology, develop compatible products, and train staff to integrate with rCBDC. - Interviews indicate most PSPs have moderate understanding and are receptive if rCBDC addresses underserved challenges or offers unique features (offline functionality, open platform). - Some PSPs question rCBDC value relative to IPS or mobile money; many report limited skilled resources already committed to BoN payment initiatives. Technology readiness - Infrastructure constraints: - Inadequate network, internet, and power coverage are critical barriers to digital payment adoption. - Approximately 48 percent of Namibians live in rural areas, making telecom and banking infrastructure investment economically burdensome and limiting access to ATMs, bank branches, and POS terminals. - Ongoing 5G capability tests by a major mobile network operator offer promising support to digital readiness. - Digital ID: - Digital ID is not yet in place; some banks provide remote onboarding with initially limited access pending manual verification. - Data localization and cloud restrictions: - Some banks view data localization requirements for core banking systems as an impediment to payment modernization, given many banks are subsidiaries of South African groups. - Cloud usage restrictions may hamper system scalability for rCBDC distributors; banks report operational constraints due to regulatory limits on outsourcing systems to external infrastructures. *IMF Technical Assistance Report | 30–34 (selected excerpts)* ### 92. While commercial banks’ mobile banking services seem technically agile to integrate ### 92. While commercial banks’ mobile banking services seem technically agile to integrate ### Interoperability and BoN IT capacity - Ensuring seamless technical interoperability of rCBDC with other systems could be challenging for the BoN given its current IT capacity. - rCBDC functioning would involve numerous stakeholders and services; interoperability between components (for example, rCBDC ledger, RTGS, wallets, intermediaries’ back-end systems, analytical and conformity systems) is key to its success. - Commercial banks, which would play a key role as rCBDC distributors, appear not to exhibit constraints in managing necessary technical interoperability: - Their mobile applications, client-facing protocols and core applications based on microservices architectures are technically agile enough to accommodate a new currency and the integration with the new infrastructure. - As operator of the core rCBDC system, the BoN must ensure efficient APIs to the distributors, and interconnections with RTGS, at a minimum. - The BoN’s operational capacity in IT departments could be challenging and may need to rely on private contractors for system building, maintenance, and support. ### Scalability, distribution, and inclusion - Achieving end-to-end scalability for rCBDC necessitates meticulous design and operational excellence at all levels; collaboration of BoN with the private sector is a necessity and key success factor. - Collaboration with the private sector should commence with efficient development of a streamlined onboarding process, particularly addressing the unbanked or underbanked population hindered by elevated acquisition costs for traditional banks. - Leveraging the substantial KYC-ed client bases of mobile operators can facilitate creation of rCBDC wallets for unbanked users. - Distributors' systems, crucial for scalability, may require access to cloud infrastructure. - Handling high volumes of retail transactions from rCBDC could impose additional challenges for the BoN as a rCBDC operator: - Operational complexities include continuous 24/7 operation, monitoring and supporting core infrastructure, and managing retail-scale transaction volumes with seasonal peaks. - Offline payments for rCBDC may offer a solution for central system scalability and contribute to financial inclusion, but: - The technology supporting offline functionality is still predominantly in the research and development phase and is not yet production-ready for mass adoption. ### Cybersecurity readiness and gaps - The BoN is actively building its cybersecurity capacity to support secure exploration, implementation, and operations of new payment systems. - Current cybersecurity staffing: "currently four cybersecurity staff". - Some critical cybersecurity risk management activities are in place or underway: - The BoN has a Security Operations Center (SOC) team that monitors the security of the BoN network during the working hours/days and engages in local and regional information sharing forums/platforms such as cyber threat intel. - Cybersecurity awareness measures implemented within both the BoN and the broader financial sector include user trainings, phishing campaigns, and posters to reinforce users’ cyber security hygiene, including active physical security controls to protect the data loss/exposure. - Some entities have cyber insurance to mitigate impact of cyber operational failure. - Identified gaps: - Lack of consistent guidance from the BoN on a cyber awareness program for both commercial banks and customers. - Namibia has no platform to actively share information about cyber-attack incidents and proper guidelines on cyber risks management within the financial sector. - Example: Letshego Holding Ltd. cyber-attacks in Nov 2023—only some commercial banks were aware of the breach of the firewall several days post-compromise via different sources. - Commercial banks subscribe to regional or subsidiary information sharing platforms, which may not necessarily cover threats targeting or occurring in the Namibia financial sector. - Cybersecurity practices for nonbank PSPs remain to be effectively regulated and enforced: - NAMFISA has a mandate to regulate and supervise nonbanks (including nonbank PSPs) but lacks the legal mandate to enforce cybersecurity on nonbanks. - NAMFISA adopts a risk-based cybersecurity framework to evaluate cybersecurity practices, but compliance with the framework is not legally enforced. - The regulatory gap could expose segments of the financial sector to risks from cyber-attacks targeting nonbanks. - The BoN has established the Cyber Council to oversee cyber risks of other financial institutions that fall beyond the regulatory purview of the BoN and NAMFISA: - The Cyber Council is nascent and is presently formulating the cybersecurity strategy and Computer Emergency Response Team (CERT) specifically tailored for the financial sector. - MNOs providing financial services are subject to regulation by the Communications Regulatory Authority of Namibia (CRAN). - The existence of diverse cyber regulations for various financial service providers increases cyber risk. ### Legal foundations for rCBDC - rCBDC issuance requires a sound legal underpinning; issuance of rCBDC constitutes a new function for central banks and should be soundly underpinned in the central bank’s applicable legal framework and monetary law. - Private law aspects of rCBDC should be clearly defined to provide legal certainty necessary to support wide adoption. - Design and use cases are crucial for legal analysis: - The BoN is exploring issuance of rCBDC and has not decided on the specific design (i.e., token-based or account-based rCBDC). - Legal distinction used here: - Account-based rCBDC: a direct current account relationship between the central bank and the rCBDC holder. - Token-based rCBDC: the claim on the central bank is incorporated in a digital token and the transfer of the token equals transfer of the claim without any current account contractual relationship between the central bank and the holder. ### Central Bank legal framework issues (BoN Act) - Definition of currency in the BoN Act is limited to “notes and coins” and thus seems to exclude other forms of currency. - CBDC issuance requires inclusion of an explicit function in the central bank organic law to “issue currency” generally, without limiting issuance to banknotes and coins. - BoN Act references: - Section 4(2)(b) states one of BoN’s functions is “to issue currency in Namibia”, but Section 1 definition of currency restricts such function to issuance of “notes and coins”. - BoN powers related to currency appear limited to banknotes and coins: - Section 40: Board must, with Minister of Finance approval, determine denominations, measures, weights, designs, and other features of the “banknotes and coins” to be issued by BoN. - Section 41: BoN shall arrange for the “printing of notes and minting of coins”; safekeeping, custody, and destruction arrangements are explicitly limited to banknotes and coins. - Section 42: Aggregate amount of banknotes and coins in circulation must be a liability of the BoN and cost of printing and minting currency must be amortized over the period that the banknotes and coins are issued. - Section 43: BoN can only issue banknotes or coins in exchange for those that have been withdrawn from circulation and defines the withdrawal procedure. - Account-based rCBDC issuance requires explicit power in the BoN Act to open accounts for rCBDC holders (i.e., the general public): - BoN is allowed to open accounts to the government and banking institutions but does not seem allowed by the BoN Act to open accounts to the general public. - Most central banks are not generally authorized to open accounts to retail customers; central banks are not envisioning to issue retail, account-based CBDC because of concerns including direct relations with final customers. - Legal tender, monopoly of issuance, and related monetary law provisions in BoN Act: - Legal tender status: - BoN Act grants legal tender status to the “Namibia Dollar”. - It explicitly states that “only such banknotes and coins issued by the Bank” and “the banknotes and coins issued by the South African Reserve Bank and serving as legal tender in the Republic of South Africa” are legal tender in Namibia (Sections 37(2) and 45(1)). - Granting legal tender status to rCBDC might raise questions about fairness, proportionality, and financial inclusion as States cannot ensure universal access to it. - Legal tender status of rCBDC could be limited (for instance, mandated only for discharge of certain obligations or for certain types of creditors). - Monopoly of issuance: - BoN Act states BoN “is the sole issuer of banknotes and coins in Namibia” (Section 38(1)). - Cours forcé: - BoN Act states banknotes and coins issued as legal tender by the BoN “must be accepted at their face value, in payment of all public and private debts in the country” (Section 39(a)). - Section 39(b) clarifies banknotes issued by the BoN are valid for the payment of any amount, while coins serve for the payment of any amount not exceeding 50 times the face value of the coin concerned. - Privileges under private law and protection under criminal law: - Offences related to currency in Section 80 are drafted to cover currency in physical form; definitions of “counterfeiting” and “produce or reproduce” in the BoN Act apply to physical currency. ### Private law and payment law considerations - Token-based rCBDC requires a firm basis under private law; authorities should analyze aspects including: - (i) legal categorization of rCBDC under property law; - (ii) mechanisms that enable and underpin its circulation (for example, transfer, custody contracts, security interest); - (iii) legal relationship between the holder of the rCBDC and the intermediary, given CBDC should remain a liability of the central bank; and - (iv) protection of the holder in case of insolvency of the intermediary. - Existing payment law(s) and applicable regulations are core: - Authorities should assess whether licensing, regulation and supervision of PSPs cover payment services such as holding and transferring rCBDCs. - PSPs offering rCBDC-related services should be adequately regulated, considering risks involved. - If rCBDC design encompasses access to central bank-operated payment infrastructures or other facilities by the general public and/or rCBDC intermediaries, then the general public and CBDC intermediaries will need to be included in the relevant law(s) or regulations as authorized participants. - Cross-border implications within the CMA (Common Monetary Area): - CMA recognizes right of contracting parties to issue “national notes and coin” but arrangements on national notes and coin issues other than rand are subject to agreement between Government of South Africa and issuing government (Article 2); CMA might impose restrictions for a cross-border rCBDC issued by the BoN. - Given rand represented by banknotes and coins is legal tender in Namibia, if South Africa issues rCBDC it is unclear if Namibia should accept such rCBDC as a valid means of payment under the agreement. - CMA mandates development of a cross-border payment strategy to implement an integrated payment system infrastructure and shall promote harmonization of legal and regulatory framework of payment and settlement systems (Article 7). ### B. Recommendations — Institutional Capacity - The BoN should continue developing internal CBDC expertise while monitoring key developments in digital payments to ensure a well-informed decision. - The mission did not find a strong case of rCBDC over alternative solutions at the moment; this may change as technology advances, markets mature, and user preferences evolve. - The mission supports the BoN's cautious approach of assessing potential use cases and policy objectives of rCBDC as the next step. - Unless the net benefits of rCBDC are clear or use cases are well defined, the authorities are not encouraged to invest into an advanced-level experiment. - It is crucial for the BoN to build in-house knowledge and skills on CBDC and to monitor technology and market developments in digital payments, to make appropriate, timely and independent policy responses without risk of vendor or technology lock-in. - Ensuring regular communications among BoN departments will help align rCBDC exploration with other payment initiatives. *IMF Technical Assistance Report — excerpt* ### 110. The BoN should consider further participating in CBDC international forums and joining ### The BoN should consider further participating in CBDC international forums and joining other prototype or pilot CBDC projects, to stay abreast of CBDC development ### International engagement and learning - Recommendation: The BoN should consider further participating in CBDC international forums and joining other prototype or pilot CBDC projects to stay abreast of CBDC development. - Suggested forums and projects: - IMF and WBG’s Community of Practice on CBDC as learning platforms. - Consider joining CBDC projects such as mBridge, a cross-border wholesale CBDC project, and other opportunities to engage or collaborate with central banks experimenting with CBDCs. - Rationale: Participation provides exposure to other central banks’ work and practical experimentations. ### Resource allocation and sequencing - Recommendation: Ensure financial and human resources allocated for the CBDC project do not hinder existing, more urgent reform initiatives before embarking on advanced, resource-intensive phases (prototype or pilot). - Key considerations: - Required capacity and resource trade-offs must be carefully assessed to ensure development and implementation of all central bank projects can be achieved and sustained. - Any disruptions, even at the prototype or pilot phase, could result in negative implications on the central bank’s reputation. ### Technology readiness and infrastructure - Recommendation: Influence discussions and collaboration with Namibian authorities to explore PPP and engage development partners to address gaps in digital and power infrastructure. - Findings and actions: - In the current setup, where the financial sector is struggling to extend financial services to Namibians, it may be challenging for the private sector to invest in telecommunication and power infrastructure without adequate incentives. - PPP can be an opportunity to address power and digital exclusion in rural areas. - The BoN is uniquely positioned to spearhead dialogues, forge partnerships, and empower relevant authorities to explore and adopt pioneering technologies, notably satellite internet services, to tackle connectivity in remote areas. - Engage with international development partners, such as the World Bank or United Development Program (UNDP), to enhance power, network, and internet coverage in Namibia. - Digital ID: - Recommendation: Collaborate with respective Namibian authorities to support development of the National Digital ID system as an enabling public good for digital payment services. - Rationale: rCBDC would require a proper digital ID system for identification and authentication; a digital ID can facilitate other government and private sector digital services. - Stakeholder coordination: - Recommendation: Further coordinate with stakeholders at different levels for joint efforts to support and develop digital transformation initiatives; engage internal and external stakeholders to determine appropriate technology solutions and processes. - Offline functionality: - Recommendation: Carefully assess benefits and risks of an offline functionality for rCBDC as supporting technology evolves. - Trade-offs: - Potential benefits: transactions in low/no internet connectivity environments; features akin to physical cash; high degree of privacy and anonymity. - Potential risks: may favor illicit activities, such as tax evasion. - Data localization: - Recommendation: Use rCBDC exploration to review specific regulation about data localization requirements, considering efficiency, effectiveness, and risks for the financial sector in Namibia. ### Cybersecurity readiness - Recommendations and actions: - Take further measures and review relevant regulations to ensure effective cyber risk management. - Collaborate with stakeholders such as NAMFISA to ensure effective cyber risk supervision and oversight in the entire financial sector, and to incorporate cyber risk management for nonbanks. - Ensure Cyber Council establishment includes effective cyber risk management for PSPs not currently covered by cyber regulations. - Collaborate with the government to ensure proper laws to combat cybercrime activities, and privacy and data protection requirements to address privacy concerns from digital payments such as rCBDC. - Establish and promote a cyber information sharing platform for the financial sector. - Build a strong 24/7/365 cyber SOC to monitor financial sector infrastructure, identify threats, and respond to or recover from cybersecurity attacks. - Implementing a cyber threat information sharing platform will assist financial institutions to learn and manage incidents proactively or reactively. ### Legal foundations and regulatory adjustments - Mandate amendments: - If policy decides to issue rCBDC, the BoN’s mandate would need to be amended to enable issuance. - Specifics: - The definition of currency in the BoN Act would need to be modified to additionally cover currency in digital form. All other applicable provisions relative to currency that exclusively refer to banknotes and coins should also be amended. - If BoN decides to issue account-based rCBDC, the BoN Act should authorize the BoN to open current deposit accounts to the general public and NBFIs in case the latter is also envisaged under the specific CBDC design. - Monetary law provisions needing amendment for rCBDC issuance: - Legal tender status: - If legal tender status is granted to rCBDC, the BoN Act must clarify that the Namibia Dollar is represented not only by material form but also immaterial, including digital form. - In line with the CMA, consider whether legal tender status should also be granted to currency in digital form issued by the South African Reserve Bank, should that be the case. - Monopoly of issuance and Cours forcé: - The BoN Act would need to be amended to give BoN the monopoly of issuance of all forms of currency, including currency in digital form. - The provision establishing that banknotes and coins must be accepted at their face value would need to cover all forms of currency as well. - Protection under criminal law: - Provisions need to encompass all forms of currency, not only physical form. - Review whether crimes such as digital counterfeiting and hacking are under the scope of cybercrime offences. - Private law and payments law: - Recommendation: Assess private law and payments law aspects of token-based rCBDC to provide legal certainty; legal reforms might be needed if key private law aspects require development. - Review agreements with technology providers relating to rCBDC design and deployment. - Closely review payments law and regulations to ensure they allow for rCBDC operations. - Central bank governance: - Recommendation: Address governance issues arising from rCBDC issuance; identify reforms required to the BoN Act and internal policies and procedures to adapt governance structures, internal organization, and risk management for additional responsibilities and operational and reputational risks (BIS 2020). - Cross-border legal review: - Recommendation: Review the CMA and additional relevant legislation if developing a cross-border rCBDC. - Actions and considerations: - Examine with CMA contracting parties authorization to issue rCBDC and whether a digital rand would have legal tender status in Namibia and other contracting parties. - Assess legal authorization to enter into multilateral CBDC agreements. - Review provisions on payment system finality rules, data sharing and/or data privacy constraints; converge them with countries involved in multilateral CBDC agreements for interlinking payment systems. - Review and, if needed, converge legislation on exchange control, capital flow management, and conflict of laws issues. - Note: Any amendments of FX regulations should be aligned with the IMF’s Institutional View on the Liberalization and Management of Capital Flows. ### CBDC project management and roadmap - Context and recent steps: - The BoN has recently taken significant steps toward modernizing payment and financial systems; rCBDC exploration is one of the strategic efforts alongside initiatives in Namibia National Payment System (NPS) Vision and Strategy 2021-2025. - The BoN published a consultation paper on rCBDC in October 2022 with objectives to provide initial policy considerations and gather public opinions; to date, nine respondents have expressed varied perspectives. - Some respondents acknowledge potential for cost-effective and inclusive digital payment tools. - Others raised concerns about implications on monetary policy and possibility of banking disintermediation. - Roadmap development: - The BoN is developing a roadmap based on feasibility assessment findings and recommendations to align milestones with identified rCBDC value propositions. - Onboarding stakeholders internally and externally is crucial; internal discussions and agreements among relevant BoN staff (working and management levels) should be arranged before external engagements. - Continuous knowledge sharing and support from key departments will help incorporate relevant opinions into the roadmap. ### Approach: 5P methodology and design thinking workshop - 5P methodology: - The IMF’s '5P' methodology offers an iterative, phased approach: Preparation, Proof-of-concept, Prototypes, Pilots, and Production. - All phases need predetermined go/no go governance decisions to iterate, proceed, partially proceed, or stop the project. - Current phase focus: - The BoN is at an early stage; the draft roadmap focuses on the Preparation phase (identify policy goals, potential use cases, cost and benefits, capacity assessment, etc.). - Key Preparation phase steps already taken: organizing the working team and publishing the consultation paper. - Design thinking workshop (Human-Centered Design): - A two-day workshop with 12 participants from the BoN's CBDC working group, sessions of 3 hours. - Structure: opening discussion on challenges and potential use cases; brainstorming areas of exploration, action plan, and key required resources for short and medium terms. - Outcome: collaborative actionable plan specifying activities, tangible outputs, priorities, timelines, and resources incorporated into a draft roadmap. ### Draft roadmap for rCBDC exploration (as defined by the working group) - General structure: three phases and associated key activities/outputs. - Themes guiding actions: - Evaluate alternative payment methods such as IPS. - Assess macro-economic implications. - Continue learning CBDC design features that can bring extra value. - Develop or support initiatives that enable payment digitalization. - Short term (within 12 months): - Produce an assessment report on value proposition of CBDC vs other payment systems. - Assess the IPS after launch: impact, success metrics, legal, fee structure, cross-border payments, and opportunity cost of not issuing a rCBDC. - Develop success metrics and factors for a modernized financial system in Namibia and map items to evaluate payment systems and rCBDC. - Become an active participant for BIS/IMF CBDC Projects. - Form a task force between South Africa and Namibia to get timely information on South Africa’s plan on digital rand and its potential impact on Namibia. - Begin leveraging partners (for example, SMEs and Chamber of Commerce) on user studies (for example, research, roadshow) to gauge public interest in rCBDC. - Mid term (within 12 to 24 months): - Produce a position paper on CBDC impacts on monetary policy and a potential digital rand. - Produce a report on programmability and tokenization in Namibian context. - Conduct public consultation of these reports. - Engage domestic partners (for example, Ministry of Finance, Ministry of Education) and international partners (for example, the World Bank) to address root causes for financial inclusion such as improving financial literacy education and digitalization. - Examples: incorporating financial knowledge into high school curriculum; launching targeted education campaigns in rural areas; seeking financial assistance for digital infrastructure building. - Long term (over 24 months): - Continue working with banks and nonbanks to improve financial and digital literacy. - Timing and priority for conducting technology tests and exploring incentive options for rCBDC to be determined based on earlier-phase findings and conclusions. - Cross-phase action: - During each phase, engage with private sector players (for example, banks, e-money issuers) to identify incentives to participate in the rCBDC system. - Draft roadmap outputs summarized: - Near Term (<12 m): assessment report on rCBDC value proposition; active participation in BIS/IMF CBDC projects; SA-Namibia task force; user studies with SMEs/partners. - Mid Term (1-2 yr): position paper on MP impacts and digital rand; report on programmability and tokenization; partnerships on financial literacy and development bank engagement for digitalization funding. - Long Term (>2 yrs): continued literacy efforts; establish enabling legal and regulatory framework; further discussion on technology testing and incentives for users. ### Recommendation on roadmap governance and stakeholder engagement - Recommendation: Continue refining the draft roadmap and engage with other BoN internal departments and external stakeholders to ensure consistencies in policies, resource allocation, and timeline. - Rationale and actions: - Keep the CBDC roadmap flexible and adaptive to rapidly evolving digital payments and technologies. - Engage ongoing collaboration with internal departments and external stakeholders identified during relevant workshops. - Actively seek input and feedback to ensure buy-in and collective understanding and endorsement. - Aim to eliminate inconsistencies in resource allocation and timelines, promoting a unified approach across BoN projects and policies. *IMF Technical Assistance Report | excerpt* ### 137. The mission assisted the BoN in laying groundworks for the feasibility study of rCBDC and ### 137. The mission assisted the BoN in laying groundworks for the feasibility study of rCBDC and ### Assessment and findings - The mission provided a holistic evaluation by analyzing potential value propositions of rCBDC to enhance payment systems and financial inclusion while also assessing alternative non-CBDC solutions. - The mission examined the implications of rCBDC for monetary policy and financial stability. - The mission evaluated foundational requirements needed if the BoN decided to issue rCBDC. This assessment factored in the implications of Namibia’s membership in the CMA for rCBDC issuance. - The mission did not find a compelling case for rCBDC issuance at this juncture. - Identified promising benefits of rCBDC: - instant and affordable payments with central bank money - offline payments - innovative digital financial services - Identified counterpoints: - A wide array of non-CBDC alternatives could serve as low-hanging fruit solutions and require less efforts to implement. - There appear to be downsides from macro-financial implications in the case of Namibia. - Taken all together, the net benefits from rCBDC are likely to be marginal at the moment. ### Policy recommendations - Continue developing in-house expertise in CBDCs and digital payments. - Do not immediately pursue a resource-intensive experiment on rCBDC. - Continue research and monitor the development of digital money while remain engaged with other CMA countries. - If the BoN opts to issue rCBDC in the future, ensure: - Resources must be sufficiently allocated without hindering urgent reforms. - Address critical gaps in ICT infrastructure and cybersecurity. - Amend the legal framework for comprehensive legal certainty across all relevant areas. ### Roadmap workshop: methodology and outputs - Two workshops with the BoN's CBDC working group were conducted to collaboratively develop a high-level roadmap for exploring foundational elements of rCBDC. - Workshops were designed in partnership with the IMF’s Corporate Services and Facilities (CSF) Department’s Creative Lab, employing Human-Centered Design (HCD) and design thinking methodologies. - The Double-Diamond model guided the design process, tailored for the country's rCBDC exploration. - Outcome: a draft roadmap with an integral high-level action plan consisting of three phases and 12 key milestones. - Workshop design intent: - Mitigate adoption risks by deeply understanding user needs, identifying barriers, and fostering engagement within the ecosystem. - Foster collaborative consensus building and multidisciplinary input across central bank departments. - Provide hands-on capacity building in HCD and design thinking for subsequent rCBDC exploration, design, and pilot stages. - Day 1: Identify Areas of Exploration (Tuesday January 30, 2024) - Framework: Structured Brainstorming. - Aim: Surface essential elements and unanswered questions the Central Bank needs to explore for a comprehensive understanding of how CBDC could benefit the country. - Method and results: - Discovery Findings Presentation introduced potential rCBDC value propositions. - Participants reflected on: “What are the key questions we need to explore / understand about the potential areas of rCBDC exploration?” - Four main areas of interest were identified: 1) evaluating alternative payment solutions such as IPS, TCIB; 2) continue learning on CBDC design features especially the ones that could potentially bring extra values; 3) evaluate and assess the macro-economic implications; and 4) Develop/ provide initiatives that could help on supporting payment digitalization including CBDC. - Day 2: Brainstorming Activities and Building the Roadmap (Wednesday January 31, 2024) - Framework: Developing a Roadmap. - Aim: Determine the path forward by identifying activities, dependencies, and workstreams to move exploration forward. - Method and results: - Brainstormed tangible activities required for comprehensive understanding of each area. - Organized and prioritized activities into a matrix assessing Level of Effort and Impact. - Tagged each activity by task nature: legal, design, technology, risk management, and stakeholder engagement. - Crafted a roadmap comprising three distinct timelines: Phase I for short-term objectives, Phase II for medium-term goals, and Phase III for long-term aspirations. - Team members voluntarily undertook roles and responsibilities to foster ownership and commitment. *IMF Technical Assistance Report — excerpt.* --- _Source: https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025016-print-pdf.pdf_