A macro image of a blue, purple and green one thousand naira note from Nigeria paired up with a colorful fifty shilling bank note from Kenya. Shot close up in macro

CBDC not a priority for Kenya, central bank says

A central bank digital currency “may not be a compelling priority in the short to medium term” for Kenya, the country’s central bank has stated.

In a recent statement, the Central Bank of Kenya (CBK) said that while a potential digital shilling has its benefits, it also comes with risks, including bank disintermediation and high implementation costs. In weighing both, the CBK says it’s not yet time for the East African country to explore a CBDC.

The top bank issued a discussion paper on CBDCs in February 2022, and it now says it received over 100 responses from the public, including from individuals, payment service providers, commercial banks, and international development partners. The responses were from nine countries, including the U.K., Japan, the Netherlands, and the United States.

Respondents highlighted the benefits of a digital shilling, including lower costs, transparency, and increased efficiency. A CBDC can also ease cross-border transfers.

However, it also comes with its own set of risks. In addition to disintermediation and high implementation costs, there are also technology and cyber risks, as well as financial exclusion. On the latter, the CBK has previously noted that those without smartphones would be excluded from the digital shilling ecosystem, further marginalizing the people needing it most.

Countries that have launched their CBDCs, including Nigeria, have faced implementation challenges. Nigeria has failed to garner interest for its digital naira, with the IMF saying that over 98% of the eNaira wallets initially opened have remained unused.

“Nevertheless, on the global stage, the allure of CBDCs is fading,” it said.

Kenya’s payments pain points “could potentially continue to be addressed by other innovative solutions around the existing ecosystem,” the bank says.

CBK Governor Patrick Njoroge has been consistent in this assessment. He has stated on several occasions that Kenya is better served by exploring other options to solve its challenges. Moreover, Kenya’s payment challenges are unique compared to its African peers. While Nigeria has over 60 million unbanked people (over 50% of the adult population), Kenya boasts 84% financial inclusion.

The governor, whose term ends this month, has also asked Kenyans not to look at CBDCs as silver bullets that can solve all their payment challenges. “On the contrary, let’s deal with the problems directly,” he said last year.

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.

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