cryptovibes.com
Central bank digital currencies (CBDCs) are a heated topic of discussion among large and small economies. The Central Bank of Kenya (CBK) recently released a discussion paper on a Kenyan CBDC.
The paper assessed the benefits and risks associated with CBDCs to determine if the CBK should start developing one.
Kenya joins the race to launch a CBDC
China is currently leading in terms of CBDC development, with the number of people with the digital yuan wallet estimated to be around 190 million. A recent survey from the Bank for International Settlements estimated that around 86% of central banks globally assessed the possible launch of a CBDC.
The central bank highlighted some benefits of CBDCs, such as facilitating cross-border payments, boosting financial stability, financial inclusion and innovation. Moreover, a CBDC was needed to enable Kenya to adapt to the changes happening in the global payments sector.
“Following the outbreak of the coronavirus (COVID-19 pandemic, digital platforms have emerged as important financial inclusion tools across the world. To reap the full benefits and manage risks, policymakers are looking to step up. Central banks are exploring the possibility of rolling out CBDC solutions to meet their future payment needs in a digital economy,” the bank said.
CBDCs carry risks
The CBK noted that there were several risks associated with CBDC issuance. The mentioned risks include developing anti-money laundering frameworks, technological risks and the cost of infrastructure.
It added that it closely monitored the developments in the global CBDC sector. While there were major benefits realized by economies that launch CBDCs, the risks needed to be considered before developing one.
“There are significant potential risks with CBDC issuance. These include financial exclusion, technology risks, competing with bank deposits and undermining bank intermediation, hampering monetary policy transmission, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), and data privacy balance and infrastructure costs, the CBK mentioned.
Last year, the Central Bank of Tanzania announced that it was also launching a CBDC. One of Africa’s largest economies, Nigeria, has also revealed its CBDC plans, with the digital naira expected to take shape soon.