BIS: African central banks pushing for CBDCs, but their motivation differs from other regions

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Almost all African central banks are interested in or are developing central bank digital currencies (CBDCs), a recent report has revealed. However, the motivations for a CBDC differed from those in other regions.

The report was compiled by the Bank for International Settlements (BIS), which collected data and feedback from 19 central banks in the region. All the respondents were interested in CBDCs, although only the Central Bank of Nigeria has managed to launch its eNaira CBDC.

According to the BIS, developing greater payment system efficiency is the biggest factor behind the CBDC interest.

However, other than this, the central banks differed among themselves over their other motivators. For some, achieving financial inclusion was a key factor, while it didn’t rank highly for others. Kenya’s central bank has previously indicated that financial inclusion isn’t one of the factors behind its pursuit of a digital shilling, with Governor Patrick Njuguna saying that Kenya already has high financial inclusion due to the ubiquity of mobile payments. It’s different in Nigeria, where the eNaira was launched to boost financial inclusion.

The study also found that African central banks differed with their global counterparts on CBDC outlook. For one, in a global survey, increased competition and efficiency ranked highly as a motivator for a state-backed digital currency. In Africa, only a few central banks held this view.

African central banks also rated lower cash distribution costs very highly as a factor behind their CBDC interest. Mobile payments emerged as a big consideration for African central banks. The region is a world leader in mobile payments, with one study finding that Sub-Saharan Africa accounted for close to 70% of global mobile money transactions in 2021.

While most central banks have continued pushing for mobile money adoption to boost financial inclusion, respondents in the BIS study revealed they believe CBDCs are a better alternative to mobile money payments.

African central banks worried about low user adoption

Cybersecurity threats emerged as the biggest deterrent for African central banks in their pursuit of CBDCs. Bank disintermediation and low user adoption were the next two biggest deterrents. The latter is a valid concern given the lackluster performance of the eNaira, Africa’s first CBDC.

Despite Nigeria being Africa’s largest economy with over 200 million citizens, it took the eNaira over 10 months to hit $10 million in transaction volume. This is despite Nigeria being Africa’s biggest digital asset hub, with billions of dollars transacted every year.

As CoinGeek found, ordinary Nigerians either believe that the existing mobile and bank payments are sufficient for their needs or distrust the eNaira altogether. On the streets of the capital Abuja, most street vendors told CoinGeek they have heard of eNaira but are only interested in adopting it for a while. For them, cash is king, and when they do need to make digital payments, they prefer to use mobile money or commercial banks.

Just as prevalent a challenge was the need for a smartphone and an Internet connection to use the eNaira. A study by the Pew Research Center found that only 32% of Nigerians owned a smartphone, with more recent studies putting adoption at about 48%. Even then, this is concentrated in the urban centers and with those who earn a decent income. However, this demographic already has access to financial services and is unlikely to switch to eNaira.

The Central Bank of Nigeria has been working to fix this, announcing earlier this year that Nigerians can access the eNaira through USSD. With 98% of Nigerians estimated to own a mobile phone, this is expected to boost adoption.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: The BSV Global Blockchain Convention panel, Blockchain in Africa