CBK mulls digital currency to boost financial inclusion

Central Bank of Kenya (CBK) is investigating the potential applications and benefits of digital currencies amid heightening demand for cashless payments.

Governor Patrick Njoroge has already discussed Central Bank Digital Currency (CBDC) with global consulting firm Accenture and World Bank officials. Accenture helps companies harness the power of blockchain technology.

“Governor Njoroge this afternoon took part in the Dialogue on Global Digital Finance Governance, a high-level roundtable discussion. He was a speaker in a discussion on Central Bank Digital Currency (CBDC),” CBK said.

The bank is taking a cue from growing moves by its global peers who have set up research teams to look into the practicality of the technology.

“A digital currency has to answer three questions, does it put people at the centre, does it connect people to digital systems and not leave anyone behind, does it empower people and protect them from risk, especially cyber security and data privacy,” Njoroge told the consultants.

Virtual meeting

In the virtual meeting last week were World Bank senior financial sector analyst Ahmed Faragalla, senior advisor at Accenture Global Blockchain Technology Ousmène Mandeng who focuses on digital currencies and payments systems modernisation and others.

Kenya’s experience with M-Pesa and other fintechs is seen by many as having provided a strong reference point when it comes to transitioning to a CBDC.

“We are in a better position than many countries that have never had any experience with digital currency,” said Bitange Ndemo, government’s chairman for Distributed Ledgers and AI.

The rapid price movements of Bitcoin, Ether and Ripple have rattled central banks, with Kenya attracting multiple global cryptocurrency exchanges. Central bank of Kenya in 2016 issued an advisory circular warning Kenyans against dealing in bitcoin transactions. 

However, Head of Innovation at the Switzerland-based Bank for International Settlement, Benoît Cœuré, said Covid-19 crisis has accelerated this change and the private sector is already ahead.

“We see new forms of payment ecosystems emerging and it is very important that central banks be ahead of the curve,” he said. 

Coeure made the remarks while addressing journalists on Friday following the launch of a joint report on digital currencies by eight central banks titled: Central bank digital currencies: foundational principles and core features.

A report released last month by blockchain analytics company Chainanalysis shows that Kenya’s peer to peer bitcoin transactions rose four times in the first eight months of the year from Sh50 million a month to Sh200 million a month.

The Kenya shilling has depreciated from Sh101 against the dollar to Sh108 in the same period on weak fundamentals and demand for safe assets such as gold. 

Forex charges

Market players say that demand for cryptocurrencies is no longer just driven by speculation but Chinese traders are asking Kenyan importers to pay them in bitcoins in order to help them bypass forex charges. 

The virtual meeting was a sharp contrast from 2016 when Njoroge issued a circular to banks and the public warning them against making transactions in cypto currencies or with crypto related ventures.