Eswatini outlines design principles of retail CBDC in new paper

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Eswatini, one of Africa’s smallest nations, has published a paper outlining the design principles of its upcoming retail central bank digital currency (CBDC). Known as the digital lilangeni, the CBDC will focus on offline capabilities, interoperability with existing payment methods and cross-border transfers.

The Central Bank of the Kingdom of Eswatini has been exploring the CBDC for years in partnership with the German technology firm Giesecke+Devrient (G+D). In a successful proof-of-concept (PoC) and two pilot projects, it has experimented with design and implementation tweaks, resulting in a version it believes will best serve the 1.2 million Swazi.

In its paper, co-published with G+D, the bank singled out the provision of secure access to central bank money and fostering payments digitalization as its key motivations for exploring the CBDC. Boosting financial inclusion and opening up new opportunities were also noted as significant benefits.

Accessibility is one of the central bank’s core targets with the digital lilangeni, prompting it to embed offline payments into the CBDC. However, this will only be available to residents who use hardware wallets that aren’t hosted by financial institutions. Hosted wallets, which will come with value-added services from the banks and payment providers, are only accessible online.

To further boost accessibility, the bank intends to make the functional design simple and suited to all Swazi.

“From a consumer perspective, the usage of Digital Lilangeni needs to be as easy and intuitive as possible. Consumers should be able to make a payment in fewer and simple steps familiar to them and with no need for advanced digital literacy,” it said.

The paper reveals that most other aspects of the digital lilangeni conform to global CBDC norms. These include pseudo-anonymity that balances privacy and compliance, allowing the exemption of Know Your Customer (KYC) and anti-money laundering (AML) for smaller transactions. It also involves no interest payments and a holding cap (not yet set) to prevent commercial bank disintermediation.

Like most of its peers, the Eswatini central bank selected a distributed and permissioned database, where it retains control, over distributed ledger technology like blockchain.

Despite the elaborate design recommendations, the bank clarified that it has not yet decided to issue a CBDC. This has been a popular caveat that central banks append to CBDC research to indicate that while the technology side has advanced, a digital currency also requires legislators to lay the foundation before central banks can proceed.

In the United States, Jerome Powell said earlier this year that the U.S. Fed is “nowhere near recommending, let alone adopting” a digital dollar despite its continued research and PoCs. The Bank of England (BoE) reiterated this message, telling legislators that “no final decision has been made” on a digital pound.

Watch: CBDCs are more than just digital money