As Africa and the rest of the world wake up to a new dawn of cryptocurrencies and central bank digital currencies, Rwanda, an East African country, doesn’t want to be left behind. With a hope to give its official position by December 2022. “We at the moment are at an investigative part analysing what might be the advantages to Rwandans to have a CBDC,” said Soraya Hakuzuyaremye, the deputy Governor at Apex Financial Institution, the National wide Financial Institution of Rwanda (Central financial Institution of Rwanda).
The investigative journey of CBDC has yet to start. In June 2021, Rwanda’s Central bank launched a commencement study that looked at the economic, financial and technological aspects of CBDCs and came up with an operationalisation model taking into account the local context. The study seems to end, with Rwanda announcing its official stand by December 2022. In the current 2022 CBDC tracker, Rwanda is reported to be in a research phase. This makes Rwanda the 2nd country in East Africa and the 10th country in Africa to declare its interest in having or launching a CBDC. Other countries include Kenya and Tanzania in East Africa and South Africa, Nigeria, Senegal, Ghana, Morocco, Tunisia, Egypt, Etswani and Madagascar.
In this article, we will identify the advantages of launching a CBDC to the Rwandese population and the East African Community in general and the disadvantages of not launching, which will have to the same population. It is important to note that Rwanda is not only a member of the East African Community but also a member of the Africa Union and Commonwealth, it has a GDP of 33.46 million, a population of 127,127,431, and the official languages are Kinyarwanda, French, English and Swahili. One of the major advantages of introducing CBDC will be expanding financial inclusion.
Many people still need access to financial services, and many banks are unwilling to invest in other regions due to distance or lack of amenities. With digital currencies, financial inclusion will be guaranteed as every person will have access to bank accounts and digital money regardless of where they are.
Secondly, cross-border transactions will be made easy and faster. This means that the introduction of CBDC will significantly boost entrepreneurs in Rwanda and allow payments and settlements between banks to be made faster and at low transaction rates. As a member of the East African community, where most banks have branches spread across the East African countries, transactions will be made faster and easier.
Thirdly, Cashless communities thrive better. With the onset of COVID-19, some of the mitigating factors to limit the spread of COVID included countrywide curfews and working from home. This meant that it was impossible to access banks for critical services or buy services and goods. With the introduction of digital currencies, although physical money will still be in circulation, the problem of not having cash will be eliminated. In situations where cash is unavailable, it will be easy to run the economy. Lastly, the introduction of CBDC will ensure better and more efficient payment systems. Safe and efficient P2P and POS systems will be introduced, thus transforming the technological face of the country.
Rwanda is ranked highly in Africa as being advanced technologically, thus with the introduction of CBDC. It’s important to note that CBDC comes with numerous challenges, including if unregulated and excellent policies are not put in place, the central bank can easily change its model to retail, making it compete with the other retail banks and financial services. Secondly, technological challenges such as duplication of numbers and users forgetting passwords might make digital currencies impossible to transact with. Information Technology gurus will have to develop P2Ps that will work seamlessly with digital cash efficiently.
Finally, digital currencies are prone to cyber hacking and crimes; therefore, the government should develop strict policies to protect its users. In conclusion, as Rwanda’s Central bank puts its effort towards coming up with a decision on CBDCs, it’s important to ensure that the digital currency will transform its economy into a digital economy and make it easier for its citizens to carry out business.
