Listen Now: Central Bank Digital Currency (CBDC) in Africa

We are living in a time when money is being reimagined. The evolution of money has seen many changes, from being backed by gold to cash and now to cryptocurrencies. In this webinar, Monica Singer and Nolwazi Hlophe discuss Central Bank Digital Currency (CBDC) with a focus on Africa.

The presence of cryptocurrencies has made it necessary for central banks to re-evaluate their roles in this technology. The growth of Bitcoin, Ethereum and other coins, China’s retail CBDC launch and Facebook’s plan to launch its own cryptocurrency, Diem, have driven the impetus. Cryptocurrency can offer a store of value, but one of the challenges was the fluctuation in its value due to how it is collateralised. For the first time in history, central banks are looking to issue digital currencies in which the liability falls on the bank itself.

There are three types of CBDCs: wholesale, retail, and cross-border payments. Whereas wholesale digital currencies have the potential to replace the traditional Real-Time Gross Settlement System (RTGS), retail CBDCs have the potential to replace cash. CBDCs also make it easier and cheaper for peer-to-peer transactions, including cross-border transactions and remittances.

CBDCs (particularly retail CBDCs) can address the objectives of central banks through monetary policy, payment sovereignty and financial inclusion. The current banking system has left 1.7 billion people unbanked, and cryptocurrencies are an opportunity to financially include them. Technology is changing; many people will be able to transact using CBDCs via their smartphones. For those without smartphones, there are options where payments can be made through biometric authentication, such as paying for a taxi fare.

There are regulatory and legal implications of CBDCs in Africa. These include the Central Bank/Reserve Bank Act, Data Privacy and Protection Laws, and Cyber Security Laws, as well as KYC and AML. The development of CBDCs in Africa, therefore, requires coordination among key stakeholders. The key for central banks is to focus on the problems that CBDCs can help resolve, as the technology behind CBDCs (blockchain) can be adapted.