The Central Bank of Kenya (CBK) issued a consultation paper in February to assess the viability of introducing a central bank digital currency (CBDC), which is a digital or virtual format of a country’s base currency. Central banks around the world are looking at CBDCs because the way people are choosing to pay for things is changing through then use of digital payments, cryptocurrencies and stablecoins.
As a global pioneer in mobile money with the M-Pesa wallet, Kenya has a huge and robust digital money market. Launched in 2007 as Africa’s first mobile payment service, M-Pesa has grown to connect 51 million customers and 465,000 businesses across seven countries.
M-Pesa now processes more than 61 million transactions a day, making it Africa’s largest fintech provider, and it has attracted 42,000 external developers to create additional services for the platform. With more people across the African continent shifting to smartphones, M-Pesa is evolving to become a digital financial services provider.
The CBK’s consultation paper says a CBDC would not focus on enhancing access to financial services considering the high penetration of mobile money in the country. Instead, it would target cost reduction for transactions, payment interoperability between merchants and agents, and improving the efficiency – speed and cost – of cross-border payments.
Some of the opportunities the CBK sees in a CBDC include enhanced cross-border payments through regional and global integration and cooperation; and promotion of innovation, where an open CBDC platform could allow companies to innovate around CBDC-related payment services and also be able to re-innovate the payment services they provide to consumers.
Some of the risks the CBK sees in a CBDC include a reduction in the use of banks in their role as intermediaries, because if significant deposit balances are moved from bank deposits to a CBDC, banks’ ability for credit creation could be constrained. Another risk is in tech, such as cyberattacks on CBDC infrastructure.
Kenya is one of about a dozen African countries that are currently exploring CBDCs and the number is increasing. Nigeria, which launched its eNaira in October last year, is the only African country to introduce a CBDC so far, although Ghana started a CBDC pilot in August.