Kenya has advanced on plans to adopt a Central Bank Digital Currency (CBDC), with the country’s Central Bank releasing a discussion paper and blueprint of how it could proceed.

“A CBDC issued by CBK would be a sovereign currency in an electronic form and it would appear as a liability on CBK’s balance sheet and an asset to users holding it,” notes the discussion paper. “The underlying technology, form and use of a CBDC would need to be designed to meet specific/identified needs of consumers.”

This comes as “new digital currencies have emerged to facilitate payment transactions” in Kenya, including electronic Money (e-Money), cryptocurrency and Stable Coin. Now the CBK is hoping to lay the groundwork for a CBDC.

The consideration to introduce a CBDC in the payments system in Kenya would be earmarked at “cost reduction, interoperability and enhancing cross border” payments.

Despite resounding success and contribution to boosting financial inclusion to over 80%, the mobile money ecosystem in Kenya has struggled for cross-platform interoperability beyond person-to-person transactions.

“Interoperability of mobile wallets, implemented in 2018, is limited to only P2P payments and is yet to be expanded to both merchant and agent interoperability. CBDC may offer promise for this interoperability,” emphasised the CBK.

With a population of 47.6 million people, Kenya’s financial inclusion stands at 83%, thanks to the popularity of digital financial transactions. Kenyans also prefer digital and mobile money channels for remittances, according to a recent study by the central bank.

As of May 2021, Kenya had 67.77 million registered mobile money accounts, with 79% of adults owning a mobile money account and 40%a conventional bank account.

Mobile payments platforms are “complimented by card transactions in the digital payments’ realm” in Kenya. In 2020, card payments amounted to US$6.5-billion, a significant share of all payment transactions in the country.

Although a CBDC offers opportunities to reduce costs associated with digital payments in Kenya, the central bank is concerned that the platform and digital unit of exchange also “comes with risks particularly related to cybersecurity and unknowns on how it would impact central banks’ core functions of monetary policy, financial stability” and payment systems oversight.