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Central Bank of Kenya says 'the allure of CBDCs is fading'

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(Kitco News) - As governments and central banks around the world explore central bank digital currencies (CBDCs), Kenya has found that their public is not to keen on the idea of digital fiat, which has led its central bank to conclude that “on the global stage, the allure of CBDCs is fading.”

The Central Bank of Kenya (CBK) issued a discussion paper on CBDCs in February 2022, asking the public for its feedback on the potential release of a CBDC in Kenya to help the CBK better craft its policy decisions.

Comments submitted to the CBK have been compiled in a newly issued discussion paper entitled “Central Bank Digital Currency: Comments from the Public."

According to the press release announcing the new discussion paper, more than 100 comments were submitted “from a diverse range of individuals, public institutions, commercial banks, Payment Service Providers (PSPs), technology providers, academia, the legal fraternity, and international development partners.”

Responses were received from nine countries, including Kenya, South Africa, the United States of America, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, and Japan.

Commenters highlighted several benefits of a CBDC, including increased efficiency, transparency, and lower costs, as well as the main risks, which include the disintermediation of banks, high implementation costs, technology and cyber risks, and financial exclusion.

“Respondents also highlighted the need to consider Kenya’s highly developed digital payments ecosystem and the high level of financial inclusion,” the CBK said. “Further, while a CBDC may be useful for cross-border transactions, its risks should be carefully considered.”

The CBK said that while the Bank for International Settlements (BIS), the International Monetary Fund (IMF), and other central banks “continue to do research and/or implement CBDC projects… on the global stage, the allure of CBDCs is fading.”

“Further, central banks that were first to roll out CBDCs have recently faced challenges that have hampered implementation,” they wrote. “Additionally, recent instability in the global crypto assets market has amplified concerns and the need for a careful review of the innovation and technology risks.”

Taking this feedback into consideration, the CBK has determined that the “implementation of a CBDC in Kenya may not be a compelling priority in the short to medium term.”

The central bank went on to suggest that the pain points in Kenya’s payments system could be addressed by other “innovative solutions around the existing ecosystem. This would be consistent with CBK’s vision for a payments system that is secure, fast, efficient, accessible to and works for Kenyans.”

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While they don’t see the likelihood of rolling out a digital Kenyan shilling in the near term, the CBK said that they will continue to monitor developments in CBDCs “to inform future assessments of the need for CBDC in Kenya.”

“Major global central banks have deferred the decision on the adoption of CBDCs,” the bank wrote. “This measured approach is consistent with the approach that CBK is taking.”

The CBK also said that it will continue to collaborate with other central banks that have developed a proof-of-concept for CBDCs and those institutions that have already implemented CBDCs “to understand if the expected benefits have been realized.”

This is not the first time that CBDCs have received a lackluster response from the public in Africa. Nigeria originally launched its e-Naira for public use in October 2021, but more than a year later, only 0.5% of the country’s population of 217 million citizens reported using the CBDC.

As a result of the muted uptake, Nigeria instituted a demonstration policy that included limits on cash withdrawals from banks and ATMs. This led to a widespread cash shortage, which ultimately forced Nigerians to turn to alternative payment methods, including the eNaira.

Since then, the adoption of the eNaira has increased, but the public’s uptake has been more out of necessity than preference.

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