The Central Bank of Kenya (CBK) has invited the public for the first time to submit their views on the introduction of a central bank digital currency (CDBC), a virtual version of the Kenyan shilling, as it seeks to keep pace with global financial innovations.
The CBK on Thursday released a lengthy discussion paper that will serve as the basis of what is expected to be a landmark debate — though it maintained that the risks surrounding digital currencies remain at this point.
The paper said the CBDC would be “a sovereign currency in an electronic form and it would appear as a liability on CBK’s balance sheet and an asset to users holding it.”
Kenyans have been given 120 days to submit their views that will form part of considerations to create a CBK-backed digital currency.
CBDC is a national fiat currency in digital form. This means that besides the printed cash, CBK will also issue the electronic equivalent.
CBDC is different from cryptocurrencies such as Bitcoin and Ethereum, meaning the CBK will maintain reserves and deposits to back it up.
“Whilst CBDC offers opportunities to reduce costs associated with digital payments, it also comes with risks particularly related to cybersecurity and unknowns on how it would impact central banks’ core functions of monetary policy, financial stability, and payment systems oversight,” CBK said in the paper.
Experts posit that the use of digital currency will eliminate the cost of printing cash and lower transactions costs. Further, central banks will find it easier to implement monetary policy in real time.
Many central banks have been carefully monitoring the development of CBDC. Africa's largest economy, Nigeria, launched its eNaira digital currency in October, while Ghana is at an advanced stage of launching its e-Cedi.
Studies by the International Monetary Fund (IMF) show that there is reason for governments to consider replacing cash with digital currencies.
Some of the IMF studies mirror many other studies done in Kenya, notably by Financial Sector Deepening (FSD), on the benefits of digital currencies.
“The key elements to be considered by CBK before issuing a CBDC are legal and institutional preconditions. These would include infrastructure, regulatory and supervisory framework, governance and risk management, central bank resources, and central bank legislation,” CBK said.
A recent survey by the Bank for International Settlements on 66 central banks revealed that more than 80 percent are working on CBDCs.
The CBK will now join other countries including the United States, Canada, China, Turkey, and India that are exploring the technology.