Since mid-2020, Kenya has been toying with the idea of adopting digital currency, in October last year, the Central Bank of Kenya (CBK) revealed it had been involved in discussions with other central banks to introduce a central bank digital currency (CBDC) and digital currency regulations. Initially, Kenya had issued warnings against digital currencies.
CBDC would be a national fiat currency in digital form that is a claim on the central bank. This means that the central bank would instead of printing cash, issue an electronic equivalent.
The reason for considering digital currencies was first aimed at stabilizing Kenya’s economy, CBK Governor Dr. Patrick Njoroge had said.
However, Njoroge acknowledged that becoming a cashless society would have to be a key priority eventually if that was to be achieved. This was after admitting that the country was simply too dependent on cold, hard currency.
In efforts towards a cashless economy, the Kenyan Government via the NTSA has announced that Safaricom and other 28 lenders and IT companies have been licensed to offer cashless payments in Public Service Vehicles (PSVs), setting the stage for the ban of the use of cash in public transport.
Once the system is in place, all passengers will be required to pay their fares via mobile money platforms, also giving the government access to their identities and personal contact information that is needed to combat the Covid-19 pandemic, which has disrupted lives worldwide.
So what is Digital currency? Also known as e-money, it is a form of currency that is available only in digital or electronic form, and not in physical form. It is also called digital money or cybercash.
Just like any standard fiat currency, digital currencies can be used to purchase goods as well as to pay for services.
The use of digital currency in Kenya would eliminate the cost of printing cash. Emerging technologies like blockchain would also lower the cost incurred to transfer and manage it.
Digital currencies are a superset of virtual currencies and cryptocurrencies like Bitcoin.
Dr. Njoroge argues that while digital currencies like cryptocurrencies appear to be out to kill the cash-only economy, the fact is that cash is still the most efficient at the moment.
“The trend is towards a less-cash economy and not a cashless economy,” Dr. Njoroge Notes.
Until recently, digital currency lacked the security to eliminate the need for paper money. However, with the penetration of internet coverage in Kenya and high interest in blockchain technology, this is no longer the case. In fact, Kenya was recently ranked first on the continent for adoption, and fifth in the world.
Digital currency is making strides to be the only currency.