Accra, Ghana//-Ghana and South Africa are piloting Central Bank Digital Currencies (CBDCs) while their other peers in the sub-Saharan Africa are in the research phase, following Nigeria’s introduction of e-Naira in 2021.
The Africa’s most populous country was the second after the Bahamas to roll out a Central Bank Digital Currency (CBDC).
According to International Monetary Fund (IMF), CBDCs are digital versions of cash that are more secure and less volatile than crypto assets because they are issued and regulated by central banks.
The South African Reserve Bank according to media reports, is trying with a wholesale CBDC, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha,
Also, the country is participating in a cross-border pilot with the central banks of Australia, Malaysia and Singapore.
On the other hand, the Bank of Ghana (BoG), is testing a general purpose or retail CBDC, the electronic Cedi (e-Cedi), which can be used by anyone with either a digital wallet app or a contactless smart card that can be used offline.
What is driving the push for CBDCs?
Globally, the need for CBDCs is being driven by the push for digital payment, financial inclusion, clearing and settlement, domestic transfer, and the demand for efficient cross-border value transfers.
To add up, CBDCs are electronic forms of money that citizens can use to make digital payments. CBDCs which are universally accessible are issued by the central banks.
They serve as mediums of exchange and store of value(s).
Benefits
Countries have different reasons or purposes for issuing CBDCs. However, for Nigeria, Ghana, South Africa and other countries in the region, there are potentially important benefits.
Speaking at the recent Mobile Money (MoMo) Stakeholder Forum themed: ‘Assessing the Impact of the Central Bank’s Digital Currency on the Future of Digital Payments’, as part of activities to mark this year’s MoMo month, Chief Executive Officer (CEO) of MobileMoney Limited (MML), Eli Hini said the e-Cedi would improve in the speed of liquidation of money while promoting security.
He added that the e-Cedi and other CBDCs would enhance the efficiency of interoperability, boost payment efficiency, reduce transaction costs, promote trust in digital payments, lead to improvement in fraud management, and help scale up innovations in the digital financial sector.
Another key benefit of the CBDCs is the promotion of financial inclusion. CBDCs according to Mr Hini could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use.
In remote areas without internet access, digital transactions can be made at little or no cost using simple feature phones. For instance, many Ghanaians in rural areas without internet connectivity send and receive money through MML and others.
Additionally, CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster.
The e-Cedi and other central bank digital currencies are becoming vital tools all over the world due to the opportunities they offer for clearing and settlements, domestic transfer, among others.
Furthermore, they can facilitate cross-border transfers and payments. Sub-Saharan Africa is the most expensive region to send and receive money, with an average cost of just under 8 percent of the transfer amount.
Therefore, CBDCs when fully implemented can make sending remittances easier, faster, and cheaper by shortening payment chains and creating more competition among service providers.
Faster clearance of cross-border payments would help boost trade within the region and with the rest of the world, experts said.
The Head of Digital Banking at Cal Bank Ghana, Madam Martha Acquaye added the CBDCs would create big convenience for customers and reduce the risk of carrying bulk cash around for transaction.
Issues raised
However, some industry watchers are alluding that the government and BoG’s attempt to roll out the country’s CBDC is meant to break the back of mobile money operators especially the industry leader.
Another key player in Ghana’s financial technology (fintech) industry has been side-lined in the pilot phase of the e-Cedi.
What stakeholders are saying?
Stakeholders are calling for a strong collaboration to enable the country’s upcoming e-Cedi) work in the new CBDC space.
According to them, with strong collaboration all stakeholders in the fintech space would contribute their quota to the smooth implementation of the e-Cedi or CBDC) being piloted by the BoG.
The stakeholders comprising MobileMoney Limited, a wholly owned subsidiary of Scancom PLC, operators of MTN Ghana; IT Consortium; and Cal Bank Ghana, noted that after transitioning through various forms of transactions in digital payments, it is important that other opportunities that are yet to be explored are tapped for their full benefits of all.
They therefore called on all stakeholders to discuss the e-Cedi to ensure its successful merger with the existing digital payment platforms in the country.
Mr Hini however pointed out: “In all these engagements there are always potential risks. We need to recognize them and ensure there are mitigations to support the implementation”.
The CBDC which is also a tokenized, digital representation of a sovereign currency, according to him is new area and it is therefore for important all stakeholders to “take advantage of the opportunities of this form of currency”.
Risks and Challenges
According to experts, there are risks and challenges that need to be considered before a central bank issues CBDC.
Governments need to improve access to digital infrastructure such as mobile devices (phones), robust IT infrastructure and internet connectivity.
Although Ghana and other sub-Saharan African countries have made significant strides, more investments are needed.
Central banks including BoG need to develop the expertise and technical capacity to manage the risks to data privacy, including from potential cyber-attacks, and to financial integrity, which requires countries to strengthen their national identification systems so know-your-customer requirements are more easily enforced.
The CEO of IT Consortium, Romeo Bugyei therefore called on the BoG and other central banks to make protecting customer data as their top priority during the implementation of the CBDCs.
“For us in the fintech sector, this is an exciting time for us…We should not be worried about challenges but focus on the opportunities to build businesses around them. We need to plan and come up with solutions”.
Also, there is a danger that citizens would withdraw too much money out of banks to purchase CBDCs which is likely to affect banks’ ability to lend. This could be a big problem for countries with unstable and weak financial systems.
Again, central banks would need to consider how CBDCs affect the private industry for digital payment services, which has made huge investments in that space as well as promoting financial inclusion through mobile money.
Mitigation measures
The Assistant Director of FINTECH & Innovation Office of the BoG, Clarence Blay, assured that the CBDCs especially the e-Cedi would not take over from Mobile Money platforms but rather improve them and other digital payments in the country.
So, he encouraged all stakeholders to give their maximum support and commitment to promoting the development of the country’s e-Cedi project.
The CBDCs are coming to build on the gains made in the more than two-decade digital payments sector by promoting inclusiveness, positive disruption to the financial service landscape, leveraging the capabilities of FSPs, user-centric design, complementarity, among others,
By Masahudu Ankiilu Kunateh, African Eye Report
