This week, the Central Bank of Kenya presented the results of its central bank digital currency (CBDC) consultation. The country is uninterested in issuing an e-Shilling in the near future but remains open to CBDC developments that could change the current payment landscape.
Feedback indicates that CBDCs are seen as potentially positively impacting financial inclusion and cross-border transactions.
The consultation followed the central bank’s discussion paper published last year, exploring the viability of a future CBDC.
The key focus for a CBDC
Two topics emphasized by the feedback were financial inclusion and addressing frictions in cross-border payments.
Eighty-seven percent of respondents saw the central bank as responsible for financial inclusion, with the government far behind at 65%. A CBDC could help decrease costs and level the playing field for “smaller financial players,” but the availability of affordable smartphones and internet connection will be key to ensure no one is left behind.
While Kenya has a high phone penetration rate, only just over half are smartphones.
Kenya’s financial inclusion levels are at 83% partly because of the widespread use of the M-Pesa mobile payment offering from Vodafone and Safaricom launched in 2007. Kenya’s financial inclusion stood at 26% in 2006.
Central bank Governor Patrick Njoroge, has previously highlighted that a CBDC is unlikely to be a ‘silver bullet’ and reach those still excluded from the financial system. That’s because one of the issues is cultural norms in some areas, which means women don’t use phones at all.
The second potential area to exploit CBDC benefits is cross-border transactions. Participants pointed to the potential efficiency benefits of instant settlements, lower transaction costs, and providing an alternative payment option.
Other CBDC survey results
The Kenyan survey received 116 responses from various actors, including public officials, financial institutions, and technology providers. Participants discussed some of the key features that the central bank will need to keep in mind to promote future adoption, such as:
- Ensuring the CBDC is user-friendly and adopted by various stakeholders.
- Guaranteeing privacy and anonymity, which will be essential to increase the public’s trust.
- Considering design aspects such as “interoperability, ease of conversion to cash, offline functionality, efficient distribution, and programmability for social welfare programs.”