Mobile money uptake likely to tip scales in favour of online currencies backed by global central bank

A CBDC is a national fiat currency in the electronic form issued by central banks alongside physical banknotes and reserve money. FILE PHOTO | SHUTTERSTOCK

By KABUI MWANGI More by this Author

The widespread adoption of mobile money in sub-Saharan Africa, led by Kenya, has laid sufficient ground for policymakers to effect the introduction of digital currencies, analysts have said.

The dramatic impact that mobile money has had on the financial revolution sends a favourable signal towards the implementation of Central Bank Digital Currencies (CBDCs) that governments across the world have been mulling for years, says Kenya’s ambassador to Belgium Bitange Ndemo and financial analyst Aaron Thegeya in a study published jointly.

Read: Explainer: digital currency versus cryptocurrency

The study dubbed From mobile money to digital cash, and which looks at lessons that governments can draw from Africa’s experience with mobile money in their quest to introduce digital currencies, says that central banks of at least 105 countries are currently developing and evaluating the new model means of exchange.

This translates to 95 percent of the total global GDP.

A CBDC is a national fiat currency in the electronic form issued by central banks alongside physical banknotes and reserve money.

“The objectives for the issuance of CBDCs differ widely, and are informed by each country’s unique socio-economic environment and policy objectives,” says the study.

“Policy goals include increasing payment system access, efficiency and resilience, increasing financial inclusion, broadening the tax base, promoting economic competition and growth, securing monetary sovereignty and reducing illicit flows of money.”

CBDC is different from cryptocurrencies such as Bitcoin and Ethereum, meaning if adopted, the Central Bank of Kenya (CBK) would have to maintain reserves and deposits to back it up.

Experts opine that the use of digital currency would work to eliminate the cost of printing cash, on top of lowering transaction costs and making it easy for central banks to implement monetary policy in real-time.

CBK disclosures show that currency production costs, which include ordering, printing, minting, freight, insurance and handling expenses, hit Sh2.39 billion in the financial year ended June 2022, compared to Sh2.09 billion in the previous year.

Mobile money, the basis upon which the success of digital currency is being pegged, has seen penetration levels hit 1.2 billion globally as of 2020, with the value of transactions exceeding $2 billion (Sh251 billion) daily.

Read: The pros and cons of digital currency

Within sub-Saharan Africa, Kenya has the highest adoption rate of mobile money, with 87 percent of individuals aged over 15 having at least one mobile money account.

Studies by the International Monetary Fund show governments are more likely to consider replacing cash with digital currencies.

→ kmwangi@ke.nationmedia.com