Several central banks in sub-Saharan Africa are testing or in the digital currency testing phase, following the launch of e-Naira in Nigeria in October. Nigeria became the second country after the Bahamas to introduce the CBDC. CBDCs digital versions of currencies that are much safer and less volatile than crypto assets because they are issued and controlled by major banks. The South African Reserve Bank is experimenting with a supermarket. CBDC, which can only be used by financial institutions to transfer funds to other banks, as part of the second phase of Project Pay. The country also participates in cross-border flights with central banks in Australia, Malaysia and Singapore.
The Bank of Ghana, by contrast, is exploring a common purpose or CBDC trading, e-Cedi, which can be used by anyone with a digital wallet system or smart card that can be used offline. Countries have different motives for doing so. issuing CBDCs but in the region there are potential benefits. The first is to encourage investment. CBDCs can bring financial services to people who previously did not have bank accounts, especially if it was designed for offline use. In remote areas that do not have access to the Internet, digital transactions can be done at low cost or for free using simple features of the phone.
They can also promote transfers and payments. Sub-Saharan Africa is a very expensive shipping and receiving facility, with an average cost of less than 8 percent of the total transfer. CBDCs can make remittances easier, faster, and cheaper by shortening payment chains and creating more competition between service providers. Immediate accreditation of cross-border payments will help to increase regional and international trade.
There are risks and challenges that need to be considered before issuing a CBDC, however. Governments will need to improve access to digital infrastructure such as telephony or internet connection. Although the region has made significant progress, more investment is needed.
Overall, major banks will need to develop technologies and technological capabilities to manage data privacy risks, including ranging from potential online attacks, and financial integrity, which will require countries to strengthen their national screening systems to identify your customer. requirements are easily enforced. There is also the risk that citizens will spend too much money on banks to buy CBDCs, which affects banking capacity. This is especially a problem in countries with unstable financial systems. Major banks will also need to consider how CBDCs affect the private sector through digital payment services, which has made it an important step in promoting investment through mobile money.
For more Read: https://blogs.imf.org/2022/06/23/more-african-central-banks-are-exploring-digital-currencies/
