Kenya’s central bank opened discussions on issuing a central bank digital currency, outlining the potential risks involved such as competition with bank deposits.
The Central Bank of Kenya joins peers around the world that are studying, testing or have introduced the government-backed digital currencies known as CBDCs — after the rise of cryptocurrencies such as Bitcoin and Ethereum.
The Bahamas and Nigeria launched their CBDCs, while countries including Sweden, China, Zambia and Tanzania are exploring or gradually rolling out theirs.
For Kenya, where electronic money in the form mobile-phone digital wallets is robust, CBDCs could help reduce transaction costs and improve interoperability and cross-border payments, according to an emailed copy of the discussion paper.
“Conversely, there are significant potential risks,” the central bank said, from financial exclusion to technological issues, competing with banks and undermining financial intermediation. Other concerns relate to cybersecurity and how CBDCs would impact monetary policy, financial stability and oversight of payment systems, the CBK said.
A CBDC issued by the Kenya central bank would be a sovereign currency in an electronic form and it would appear as a liability on the CBK’s balance sheet and an asset to users holding it, the bank said.
Starting a discussion on issuing a CBDC in Kenya comes weeks after Governor Patrick Njoroge reiterated that the central bank doesn’t recognize cryptocurrencies as legal tender.
“Any eventual decision to introduce a CBDC would involve the government, regulatory authorities, private sector and engagement with society more generally,” the CBK said. “The most valuable opportunities that encourage issuance would be where a CBDC can support CBK’s public policy objectives.”
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