The Central Bank of Kenya (CBK) is open to the idea of a central bank digital currency (CBDC). Even so, considering the fading allure of CBDCs globally and the availability of alternative payment solutions in the East African nation, the central bank has, in a press release on June 2, said implementing a digitized version of the Kenyan Shilling is not their immediate priority.
Kenya: CBDCs Have Its Benefits But Is Not Our Priority
Kenya is open to using blockchain technology and has even explored the potential of a Central Bank Digital Currency (CBDC). In February 2022, the CBK asked for public input on implementing a CBDC in Kenya.
The paper, Discussion Paper on Central Bank Digital Currency, wanted to extract views from the public which could then be used to inform policy and the degree of public acceptance of the innovation.
After 16 months, the CBK reported that feedback highlighted the benefits the CBDC could offer. These include reduced transaction costs, increased transparency, and improved efficiency.
However, while there were positives, the CBDC in Kenya would likely cause the disintermediation of banks, lead to financial exclusion, and there were high implementation costs.
Besides, there were risks of cyber-attacks on the issuing entity, considering the CBDC will exist digitally and be issued via a public or private network. CBDCs differ from privately issued crypto assets like Bitcoin or Ethereum.
The central bank also acknowledged that research was being done by other financial institutions, the Bank of International Settlement (BIS), the International Monetary Fund (IMF), and other central banks.
Moreover, they have been collaborating with other central banks that have already developed CBDC’s proofs-of-concept as they seek to benefit from their experience.
The CBK remained cautious, observing that the initial hype around CBDCs is fading, noting that the first banks to adopt them are facing challenges hampering implementation.
Expanding broadly, the central bank noted that the instability in the global crypto markets has further worsened the situation.
Fixing Local Problems With Local Solutions?
Due to this history, the CBK has decided to halt the progression of CBDCs but will keep an eye on any advancements in the field.
Thus far, they explained, existing solutions offer alternative payment systems consistent with their overall objectives of providing a “secure, fast, efficient, and accessible” network that works for all Kenyans.
In 2021, the Central Bank of Nigeria (CBN) launched the eNaira, a digitized version of the Naira that the financial institution said was meant to complement but not replace cash.
While issuing the eNaira, the CBN said the goal was to increase transparency and accountability while lowering the cost of doing business in the country.
However, while eNaira modernized Nigeria’s payment landscape, there were concerns, like in all CBDCs, about security and privacy implications.