Kenya joins the growing list of countries that are exploring national digital currency options. The Central Bank of Kenya has said the use of a Central Bank Digital Currency (CBDC) could enhance cross-border payments by making them more efficient and less costly. More and more countries are now exploring a CBDC option. Earlier, the Indian government announced that it would issue a digital rupee in the coming year.
A CBDC could flatten the multi-layered correspondent banking structure.
In a discussion paper examining the potential use of a digital currency, the financial regulator said that CDBC solutions could flatten the multi-layered correspondent banking structure and shorten the payment chains. The regulator has given its citizens up to May 20 to submit their comments on the paper which analyses both threats and opportunities of CBDC, which has already been rolled out in various countries globally, including Nigeria.
A key opportunity where the Kenyan central bank sees potential value is the use of the CBDC in facilitating cross-border transactions. “While it is difficult to quantify the benefits, CBDCs may have the potential to lead to efficiency gains by flattening the multi-layered correspondent banking structure and shortening the payment chains,” it said.
The central bank says a digital shilling could fend off private currencies.
According to CBK, a CBDC could potentially shield the public from the risk of new forms of private money by providing safer and more trustworthy payment services than new forms of privately issued money-like instruments, such as stablecoins. Nonetheless, it noted that CBDC presents an opportunity for cyberattacks and other security threats, including data privacy issues. “The ‘unknowns’ would impact central banks’ core functions of monetary policy, financial stability, and payment systems oversight,” CBK said.
