More African Central Banks Are Exploring Digital Currencies

IMF Blog, June 24, 2022

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Authors: Habtamu Fuje, Saad Quayyum, Franck Ouattara
Date: June 24, 2022
Several sub-Saharan African central banks are exploring or in the pilot phase of a digital currency, following Nigeria’s October introduction of e-Naira.
Nigeria was the second country after the Bahamas to roll out a CBDC.
CBDCs are digital versions of cash that are more secure and less volatile than crypto assets because they are issued and regulated by central banks.

South Africa
- The South African Reserve Bank is experimenting with a wholesale CBDC, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha.
- South Africa is participating in a cross-border pilot with the central banks of Australia, Malaysia and Singapore.
Ghana
- The Bank of Ghana is testing a general purpose or retail CBDC, the e-Cedi, which can be used by anyone with either a digital wallet app or a contactless smart card that can be used offline.
Other countries in the region are in the research phase.

Promoting financial inclusion
- CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use.
- In remote areas without internet access, digital transactions can be made at little or no cost using simple feature phones.
Distribution of targeted welfare payments
- CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster.
Facilitating cross-border transfers and payments
- Sub-Saharan Africa is the most expensive region to send and receive money, with an average cost of just under 8 percent of the transfer amount.
- CBDCs could make sending remittances easier, faster, and cheaper by shortening payment chains and creating more competition among service providers.
- Faster clearance of cross-border payments would help boost trade within the region and with the rest of the world.

Digital infrastructure
- Governments will need to improve access to digital infrastructure such as a phone or internet connectivity.
- While the region has made significant strides, more investment is needed.
Data privacy and cyber risk
- Central banks will need to develop the expertise and technical capacity to manage the risks to data privacy, including from potential cyber-attacks.
Financial integrity and identification
- Managing financial integrity will require countries to strengthen their national identification systems so know-your-customer requirements are more easily enforced.
Financial stability and bank funding
- There is a risk that citizens pull too much money out of banks to purchase CBDCs, affecting banks’ ability to lend.
- This is especially a problem for countries with unstable financial systems.
Impact on private digital payment industry
- Central banks will need to consider how CBDCs affect the private industry for digital payment services, which has made important strides in promoting financial inclusion through mobile money.

Invest in digital infrastructure to enable widespread CBDC use, including offline-capable solutions for feature phones.
Build central bank technical capacity for cybersecurity, data privacy management, and CBDC operations.
Strengthen national identification systems to facilitate KYC and financial integrity.
Design CBDC features and frameworks to mitigate risks to bank funding and lending, especially in countries with unstable financial systems.
Assess and coordinate with the private digital payments sector to preserve gains in financial inclusion and competition.

IMF Blog: More African Central Banks Are Exploring Digital Currencies (June 24, 2022)