Kenya – Central Bank Calls for Opinion on Adoption of Digital Currency

The Central Bank of Kenya has released a discussion paper on a CBDC for the public to submit their views

CBK governor optimistic about country’s adoption of central bank digital currency

Written representations and submissions should be sent to the Central Bank of Kenya by May 20, 2022, 5:00 p.m.

The Central Bank of Kenya has released a discussion paper on a Central Bank Digital Currency (CBDC) for the public to submit their views.

The discussion paper invited public comments to be considered when assessing the potential use case of a CBDC in Kenya. The paper also examines the applicability of a CBDC in Kenya, if adopted, as part of the Central Bank‘s initiative to ensure informed policy decisions regarding innovations.

Written representations and comments from the public must be sent to the Central Bank of Kenya no later than May 20, 2022 at 5:00 p.m.

The central bank will collect feedback on the matter via an online form for 120 days.

A CBDC is the national currency of a country that exists in electronic form, under the issuance, control and regulation of the country’s monetary authority and backed by the government.

Opportunities and risks posed in Kenya when adopting a CBDC.

The CBK Governor is optimistic about the adoption of a central bank digital currency. Kenya is considering adopting a CBDC for;

Facilitate cross-border payments.

Mitigate systemic risks and enable transparent traceability of monetary transactions.

Promote financial stability and create a resilient mode of payment.

Embrace new technological advances that may be inevitable in the future.

Dr. Patrick Njoroge said CBDCs could reduce the time it takes to make cross-border payments in addition to significantly reducing costs.

However, the bank says that a digital currency also presents a wide variety of risks;

A CBDC could invalidate the effectiveness of monetary policy and increase the risks of potential money laundering.

Digital currency would limit commercial banks and could kill their relevance.

The CBDC of Kenya would promote the financial exclusion of the majority population who do not have access to technological knowledge and infrastructure.

The technological risks posed by an ultimate legal tender system are enormous.

“The balance of risks and benefits of central bank digital currency will vary from economy to economy,” the bank said in a statement.

Fundamentals required for a digital currency to work in Kenya.

To adopt a digital currency in the country, the government of Kenya should ensure that the CBDC is;

Simple to use by the majority of the country’s population.

Has lower transaction costs than the already existing payment method.

Supports seamless convertibility to other currencies.

Permanently available and with a high degree of security

Flexible and safe.

The Central Bank of Kenya added that all countries in the region need to participate in flattening the corresponding tiered banking structure and shortening payment chains for a digital currency to work.

The development of CBDCs is on the rise. According to a 2021 survey of central banks by the Bank for International Settlements (BIS), 86% of central banks are researching the potential of CBDCs, 60% are experimenting with them, and 14% are rolling out pilot projects. projects.

CBK is still firm on a cryptocurrency ban.

CBK maintained the cryptocurrency ban and did not issue digital currency due to concerns about the risks of a CBDC.

The CBK Governor said on January 27 that the bank’s stance on restrictions on cryptos like bitcoin in Kenya remains in place.

The CBK has also issued circulars to local commercial banks warning them against processing cryptocurrency transactions or facing penalties for non-compliance. The last circular was published in 2018 and has remained in force until now.

“What is the need they are filling? Or is it a new tool, and we are only interested in the technology, but not how it will help the citizens of the country,” said Patrick Njoroge.

Read: Central Bank of Kenya on cryptocurrency ban

He said technologies should solve problems, but cryptos support illicit trade.

Commercial banks in Kenya have eliminated customers with bank accounts for cryptocurrency transactions. Some have gone so far as to issue notices to customers buying cryptocurrencies, warning them of the permanent closure of accounts. CBK seems to be waking up to the reality, and the release of the discussion paper is just the start.

Kenya leads in P2P crypto transactions globally.

Kenya has topped peer-to-peer cryptocurrency transaction volumes despite being banned from the 2021 Global Crypto Adoption Index survey.

Peer-to-peer, or P2P, commerce is the buying and selling of cryptocurrencies directly between users, without interference or regulation from third parties. P2P transactions in Kenya report high volume due to ban by the Central Bank.

According to The Mastercard New Payments Index survey, 43% of Kenyans say they plan to use cryptocurrency in 2022, and more than 69% note that they are more open to using crypto than they weren’t a year ago.

In 2021, crypto adoption jumped over 880%, with P2P platforms driving usage in the emerging market. In Kenya, many have used crypto to conduct international transactions for individual remittances and purchase goods to import and sell.

About Ruben V. Albin

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