On February 2022, the Central Bank of Kenya (CBK) invited the public to submit its views on introducing a virtual Shilling, Central Bank Digital Currency (CBDC). This move has been welcomed by Kenyan investors as long overdue, considering Nigeria has already launched its CBDC, eNaira, and Ghana is in a very advanced stage of launching its eCedi. In a paper titled “Discussion paper on Central Bank Digital Currency”, released to the general public in February 2022, CBK indicated that domestic payments show digital currency was highly active. Therefore, introducing a CBDC in the payments system in Kenya could target cost reduction and enhance cross-border payments.
It’s important to note that the National Fiat, a digital currency, will be printed and distributed alongside the normal notes. Kenyans from grass roots level are expected to submit their views and suggestions and give ideas that will form part of the consideration to create a Digital based currency. What do Kenyans stand to gain if a CBDC is successfully launched? There are various opportunities that digital currency will offer, firstly to the Central Bank, Low cost of printing money hence lowering transaction costs. There will be lower transaction costs for Kenyans and retailers when sending or receiving money across the border.
The high cost of sending money to African countries is also a major motivator for the need for a CBDC. Thirdly, the introduction of CBDC will ensure better efficiency and safety in the retail payment systems, i.e. P2P and point-of-sale payment systems. Fourthly, it is a positive move towards cashless payments, considering in 2020, during the COVID-19 pandemic, where it was difficult to handle cash payments. Next, will CBDC eliminate financial risks in case there is a collapse in commercial banks, as they exist in virtual/digital form?
Lastly, the introduction of CBDC led to innovation and employment opportunities for software designers tasked with developing new payment platforms. The downsides of digital currencies include less privacy for users compared to physical cash. Secondly, it will be hard to achieve an all-inclusive adoption as the coins will only be allowed in the countries that have them. Thirdly, central banks will become competitors to local banks and financial institutions, making banks lose their income. Fourthly cost of setting up a running infrastructure by Central Bank.
In summary, looking at the potential benefits Kenyan individuals would achieve, retailers and banks, I would say the pros outweigh the cons. It should, however, be noted that there is also a need to come up with not only monetary policies but also policies that will govern the use, holding and distribution of CBDC’s in the country. If a CBDC is successfully launched, Kenya will join Nigeria in successfully launching its CBDC’s and pave the way for other countries such as Morocco, Rwanda, Madagascar, Ghana, Tunisia and Etswani, who are still in the research phase. What are Kenyans expected to do within the 120 days that have been allocated by CBK? Use the given avenues and present their views to the Central Bank of Kenya on the need for a National Fiat, a digital currency already to the existing physical money.
