coingeek.com
As part of plans to liberalize the country’s financial landscape, Ethiopia’s Council of Ministers is moving toward introducing new banking reforms, with the incoming rules hinting at a commercial rollout of central bank digital currencies (CBDCs).
According to a local news outlet report, the ministers have given their consent to two draft reforms—the Banking Business Proclamation and the National Bank of Ethiopia (NBE) Proclamation.
A close look at the content of both proclamations reveals a focus on improving the credibility of the local payment ecosystem, bringing them to par with modern realities. The proclamation dealing with the NBE is expected to strengthen the central bank for improved monetary control.
The NBE’s top priority is launching a CBDC pilot, but the central bank is expected to meet several checklists. For starters, the NBE is eyeing the establishment of a legal framework to guide its CBDC foray and the launch of a regulatory sandbox to tinker with real-world use cases.
Speculation over a CBDC has been swirling since the start of the year, with insiders touting June 2024 as a potential launch date. One report hinted at the NBE’s plans to join a “cross-border payment system” before the end of the year but failed to namecheck any of the potential systems.
Ethiopia is not totally on board with CBDCs, with the local financial ecosystem leaning on blockchain technology for government transactions. Following the historic decision to shutter the state’s monopoly on mobile services, there is widespread speculation that a raft of private players will launch their blockchain-based payment services.
Other policy changes heralded by the NBE Proclamation include the launch of a Monetary Policy Committee and a National Financial Stability Committee. The reform also stipulates the tenures of the central bank’s board members and penalties for commercial banks that contravene the NBE’s rules.
The Banking Business Proclamation is seen as an attempt by the central bank to attract foreign investment in the local ecosystem. International banks will be allowed to set up local subsidiaries or buy majority or minority stakes in local commercial banks.
Both Proclamation will be presented before the House of Peoples’ Representatives for final approval after a public consultation and a parliamentary debate.
Africa’s dance with CBDCs
Several African countries are proceeding to experiment with CBDCs to improve the metrics for financial inclusion and reduce a dependency on cash.
Nigeria launched the commercial rollout of the e-Naira in 2022, but adoption levels have been largely disappointing. The e-Naira faced a series of technical glitches and animosity from some commercial banks over fears that reliance could adversely affect their earnings.
Since then, countries like Ghana, Kenya, and South Africa are proceeding with caution in their quests to launch their own CBDCs, learning valuable lessons from the Nigerian experience.