Nigeria became the first country in Africa to launch its central bank digital currency (CBDC), dubbed the eNaira, in October last year while Ghana is said to be at an advanced stage of launching its e-cedi. The Bank of Zambia is also carrying out research on digital currencies. The CBDCs, unlike cryptocurrencies like Bitcoin and Ethereum, are developed by central banks and pegged on countries’ fiat currencies.

The Central Bank of Kenya (CBK) has today issued this document as the basis for a public discussion, noting that cost reduction, interoperability and enhanced cross-border payments would be the main drivers for the digital currency’s adoption in the country. The CBK said that mobile money (e-money), which East Africa’s biggest economy pioneered in 2007, has already helped the country to enhance access to financial services — one of the value propositions of digital currencies.

“The trend in Kenya’s domestic payments indicates the existence of a digital currency (e-money) that is robust, inclusive and highly active. Therefore, the consideration to introduce a CBDC in the payments system in Kenya would not majorly focus on enhancing access to financial services given the existing and growing penetration of mobile money,” said the CBK.

Kenya’s 38 million mobile money subscribers transacted a total of $55 billion during the first 11 months of last year, according to CBK data. This is a 20% growth from a similar period in the previous year.

“Looking to the horizon, it will be critical to connect our payment systems across the region and globally. Existing proposals indicate that CBDC might hold the potential to achieve this interoperability,” said the CBK.

The CBK said that a digital currency that is compatible with others could play a role in improving cross-border payments, which are currently slow and expensive. According to the IMF, discussions on how CBDCs could be used for cross-border payments are ongoing but this, too, has potential risks.

“Adverse macroeconomic implications, such as increased currency substitution and vulnerability to financial shocks, are possible as retail CBDC becomes available across borders,” said the IMF in the paper released yesterday.

To date, nine countries have launched a digital currency, with Nigeria being the first outside the Caribbean — 14 are in the pilot stage while 87 others are exploring it.