The Central Bank of Kenya has said the use of a Central Bank Digital Currency (CBDC) has the potential to enhance cross-border payments by making it more efficient and less costly.
In a discussion paper examining the potential use of a digital currency, the regulator says that CDBC solutions have the potential of flattening the multi-layered correspondent banking structure and shortening the payment chains.
The regulator has given Kenyans up to May 20 to submit their comments on the paper which analyses both threats and opportunities of CBDC which has already been rolled out in various countries globally including Nigeria.
Personally, I think the downside would be the strong control that the state would retain over the blockchain network within which the digital currency would operate upon introduction.
Read more on exactly what I think about government-controlled digital currencies here
“A key opportunity where CBK sees potential value is the use of CBDC in facilitating cross-border transactions, while it is difficult to quantify the benefits, CBDCs may have the potential to lead to efficiency gains by flattening the multi-layered correspondent banking structure and shortening the payment chains,” it said.
CBDC, according to CBK, could potentially shield the public ‘from the risk of new forms of private money by providing safer and more trustworthy payment services than new forms of privately issued money-like instruments, such as stable coins.’
Nonetheless, it noted that CBDC presents an opportunity for cyberattacks and other security threats including data privacy issues.
“The ‘unknowns’ would impact central banks’ core functions of monetary policy, financial stability, and payment systems oversight,” CBK said.
It says that CBDC would also exclude those unable to use technological devices as it mainly requires technological infrastructure and technical literacy is not accessible to all sections of the public
“There is potential for CBDC to enable the marginalized areas in the country to access a digital payments channel. This would require penetration of CBDC infrastructure in areas that have been marginalized by the private payment providers due to lack of market attraction
The CBK remained cagey on CBDC saying “In the case of Kenya where electronic money has taken root, the proposed value solution offered by CBDC seems to be already met.”
“As is with mobile money, the focus of the assessment of CBDC innovation must be on functionality and the problem it resolves for the people rather than the underlying technology,” CBK said.
