The Central Bank of Kenya (CBK) has invited citizens to submit their views on the introduction of a Central Bank Digital Currency (CBDC), a digital version of the Kenyan shilling.
In a discussion paper released Thursday, the CBK 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.”
A CBDC issued by the CBK is the same as a fiat currency and is exchangeable one-to-one with the fiat currency, only that it is in electronic form. As opposed to the other forms of electronic money issued by central banks, that is central bank reserves, CBDC designed for retail payments would be universally available.
The trend in Kenya’s domestic payments indicate the existence of a digital currency (e-money) that is robust, inclusive and highly active. The CBK states that the consideration to introduce a CBDC in the payments system in Kenya would not majorly focus on enhancing access to financial services given the existing and growing penetration of mobile money, but could however target cost reduction, interoperability and enhancing cross-border payments. Looking forward, it will be critical to connect payment systems across the region and globally. Existing proposals indicate that CBDC might hold the potential to achieve this interoperability.
Conversely, the CBK acknowledges there are significant potential risks with CBDC issuance. These include financial exclusion, technology risks, competing with bank deposits and undermining bank intermediation, hampering monetary policy transmission, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) and data privacy balance and infrastructure costs.
“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.”
Central Bank of Kenya.
Before issuing CBDC, CBK would need to carefully review the legal and institutional preconditions. These would include infrastructure, regulatory and supervisory framework, governance and risk management, central bank resources, and central bank legislation.
The CBK will now join other countries including the United States, Canada, China, Turkey, Sweden, Singapore and India that are exploring the technology.
Kenyans have until May 20, 2022, to submit their views and ideas to be considered when assessing the use case for CBDC in Kenya. Responses may be submitted to this email address fin@centralbank.go.ke, or through the online form via this link
CBK has provided key questions which will guide the response by the public as part of the review of the discussion paper, which you can access here.
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