African central banks proceed cautiously with digital currencies

Nairobi. With Nigeria's eNaira failing to gain traction in the first year of rollout, other African Central Banks are taking a cautious approach to digital currency- spending more time on testing to fix impending loopholes.

As more African countries look to pilot regulated digital currencies, central banks are embarking on 'comprehensive tests' before full-scale rollouts.

Mauritius and Tunisia -the only two African countries currently in the development stages of Central Bank-backed e-money are among over 20 countries globally expected to take significant steps towards piloting a Central Bank Digital Currencies (CBDC) this year.

Mauritius has already indicated plans to start piloting its digital currency by the end of 2023 after setting up a CBDC "sandbox" -a secure computer-based testing environment- in December 2022 to experiment with various features and design attributes of the currency.

"We are contemplating the rolling out of our Digital Rupee on a pilot phase, post the sandboxing exercise and finalisation of design attributes of our CBDC, in November this year," said Bank of Mauritius Governor Harvesh Kumar Seegolam in a statement.

Mauritius plans to develop a retail central bank digital currency for the phase one pilot with considerations for cross-border transactions in future phases.

"This may be a solution to current frictions in cross-border payments and a means to achieve the G20 objective for faster, cheaper, more transparent and secure cross-border payments," said Seegolam.

The bank said it has adopted a prudent and cautious approach on its CBDC journey due to “limited insights on CBDCs from researches done so far, few proofs-of-concept and even fewer pilot projects that have been implemented.”

Tunisia is yet to announce an official piloting date. Still, the country's banking regulator had in mid-2022 made a round of wholesale CBDC exchange trials-involving wire transfers between local and French-based banks, according to Atlantic Council. This think tank tracks global CBDC developments.

South Africa and Ghana began testing their digital currencies in 2021 but have yet to move past the piloting stage.

South Africa has been conducting two pilots focused on testing a wholesale CBDC. One focuses on using e-currency by financial institutions for interbank transfers under the country's Project Khokha. The other focuses on cross-border payments between the South African Reserve Bank and the central banks of Australia, Malaysia and Singapore.

Ghana also has two pilots. One is for online users to leverage banking apps for peer-to-peer transactions, wallet-to-bank transfers, and merchant and bill payments. The other is testing offline distribution of e-Cedi through smart cards targeted at merchants.

During the Payments Canada Summit in Toronto in early May, the Bank of Ghana's First Deputy Governor, Maxwell Opoku-Afari described the country's CBDC pilot progress as 'positive', pointing to potential take up and usage.

Among key lessons Ghana's banking regulator has learned over the pilot period include the importance of localisation of the currency to develop human-centred designs that match individual country contexts.

These aspects, Opoku-Afari told the conference, highlight the need for African Central Banks to conduct thorough testing before rollout.

"Nigeria went straight to CBDC implementation. And I love them for doing that - but we can't do that!" said Opoku-Afari.

Nigeria's Central Bank Digital Currency (CBDC), e-Naira- the first in Africa- has suffered a sustained low overall uptake after an initial strong uptake- about 500,000 downloads - three weeks after it became a legal tender in October 2021. That early interest famously crashed the e-currency's platform.

According to the International Monetary Fund's (IMF) latest report, Nigeria recorded about 942,000 e-Naira retail wallet downloads at the end of November 2022, equivalent to just 0.8 percent of active bank accounts in the country

The report titled 'Staff Report for the 2022 Article IV Consultation: Key Issues' and 'Nigeria: Selected Issues, also shows 'eNaira retail transactions were lower than the number of eNaira wallets.

"The total number of eNaira retail transactions since the inception (around 802,000) is less than the number of eNaira wallets, which indicates that wallets are not actively used," said the IMF report.

Nigerian Central Bank has since mounted a public usage promotion campaign targeting eight million users. Zimbabwe is seen following in the footsteps of Nigeria- by going with direct implementation of e-currency before piloting, after unveiling a gold-backed digital currency early May. (Bird story agency)

The country’s central bank regulator said the e-currency will be used for peer-to-peer and peer-to-business transactions to hedge against the Zimbabwe dollar’s volatility.

“The issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public,” said Reserve Bank of Zimbabwe Governor, John Mangudya in a statement.

Zimbabwean central bank had conducted a CBDC consumer survey in November 2022 to access opinions on the design and nature of a potential CBDC.

Some 10 African countries - Morocco, Eritrea, Kenya, Uganda, Rwanda, Tanzania, Zambia, Madagascar, Namibia and Eswatini - are still in the research stages, according to Atlantic Council data.

According to the think-tank, a total of 114 countries-representing over 95 per cent of global GDP, are currently exploring a CBDC. This number has increased from the 35 countries that were considering CBDC in May 2020, indicating a growing interest in digital currencies.

"A new high of 60 countries are in an advanced phase of exploration (development, pilot, or launch)," said the Atlantic Council.