Officials of African central banks believe that creating and implementing a central bank digital currency (CBDC) will help the region actively develop and improve its monetary policy.
The Bank for International Settlements (BIS) found that the majority of state financial institutions in the African region are interested in CBDCs.
A survey by the BIS targeted the senior management of 19 African central banks. The motivations for introducing a state digital currency in the region are the following:
- reduced distribution costs of money;
- improved access to financial services for the public;
- increased competition in finance;
- creating programmable money;
- greater effectiveness of monetary policy;
- combating money laundering and tax evasion;
- developing the P2P payment market;
- better privacy.
The only operational CBDC in Africa is the eNaira, the digital currency of the Central Bank of Nigeria. However, other countries are also actively developing in this direction. For example, South Africa is working on a wholesale CBDC for institutional use, and Ghana is developing a retail digital currency.
Despite the high level of interest from African central banks in CBDCs, BIS analysts identified several significant obstacles to the active adoption of the technology. The main concerns are:
- high levels of cybercrime;
- low user adoption of the technology;
- excessive operational burden for the central bank;
- reduced privacy relative to fiat;
- crowding out private payment service providers.
Nonetheless, the cryptocurrency market in Africa is growing rapidly. For instance, crypto users in the region increased 25-fold in 2021. In Nigeria, 42% of the population actively uses cryptocurrencies to make various payments.
Due to the rapid crypto adoption, the International Monetary Fund (IMF) expressed concern about the lack of crypto market regulation in Africa, insisting on tighter oversight. IMF officials argue that “the risks from crypto-assets are evident” and “it’s time to regulate” the regional crypto market.
IMF analysts revealed that only one-quarter of African countries officially regulate the cryptocurrency market. For example, cryptocurrencies are banned in Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo. Two-thirds imposed some restrictions on crypto. In Zimbabwe, banks were banned from processing crypto transactions, but there’s no official ban in the country.
Moreover, the IMF said that cryptocurrencies could pose a threat to the public financial sector in the African region if governments accepted them as a means of payment. The Central African Republic (CAR) is the only country in the region with Bitcoin as a legal tender.