CBK says allure of adopting digital currency fading
Central Bank of Kenya (CBK) has announced that it not proceed with the planned adoption of a Central Bank Digital Currency (CBDC), citing security and accessibility concerns.
CBK issued a Discussion Paper in February 2022, seeking public feedback on the potential implementation of a CBDC in Kenya. It received over 100 responses from individuals, public institutions, commercial banks, Payment Service Providers (PSPs), technology providers, academia, the legal fraternity, and international development partners.
Lower costs, transparency
Respondents highlighted the potential benefits of a CBDC, such as increased efficiency, transparency, and lower costs. “However, they also raised concerns about the disintermediation of banks, high implementation costs, technology and cyber risks, and the potential for financial exclusion,” said CBK.
CBK also took into account the evolving global landscape of CBDCs. While international organizations like the International Monetary Fund (IMF) and other central banks continue to research and implement CBDC projects, CBK said attractiveness of CBDCs is diminishing globally.
“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,” the regulator said.
Moreover, central banks that were early adopters of CBDCs have faced implementation challenges, and recent instability in the global crypto assets market has heightened the need for a thorough review of the associated innovation and technology risks. Given these factors, CBK decided that implementation of a CBDC in Kenya is not a compelling priority in the short to medium term.
The bank believes that Kenya’s existing payments ecosystem can address the country’s payment challenges through other innovative solutions.
The CBK said its vision for a secure, fast, efficient, and accessible payments system for all Kenyans aligns with exploring alternative approaches within the current framework.
“The CBK will continue to monitor global developments in CBDCs to inform future assessments of the need for a CBDC in Kenya,” the regulator said in a press statement on Friday.
In doing so, the bank is collaborating with other central banks that have developed proof of concepts for CBDCs, aiming to benefit from their experiences.
Additionally, the CBK is actively engaging with central banks that have already implemented CBDCs to understand whether the anticipated benefits have been realized.
The CBK’s measured approach is in line with major global central banks, which have deferred the decision on CBDC adoption.
By closely evaluating the outcomes and challenges faced by these central banks, the CBK aims to make informed decisions about the potential implementation of a CBDC in Kenya.
Although the CBK has put the adoption of a CBDC on hold, it remains open to revisiting the topic in the future as technological advancements continue and the global landscape evolves.