After having watched with suspicion the rise of crypto-currencies (Bitcoin, Ethereum...), more and more African countries are now considering the introduction of their own digital currencies, called "central bank digital currencies (CBDC)." After Morocco, Egypt, Kenya, South Africa and Nigeria, the Ghanaian E-Cedi project (digital currency replicating the national currency, the Cedi) was confirmed in August for a launch planned for last September. The European Central Bank, the US Federal Reserve and the Bank of England have been working on this issue since 2020, following in the footsteps of China, which is successfully experimenting with an "e-yuan" in several of the country's major cities (Shenzhen, Suzhou, Xiong'an and Chengdu).
A new chapter in the digital revolution
A new chapter in the digital revolution Taking note of this momentum, African finance actors seem determined to embrace this new chapter of the digital revolution. During a recent virtual workshop co-organized by the International Islamic Trade Finance Corporation (ITFC) and the Central Bank of West African States (BCEAO), Justine BEUGRE, advisor to the General Manager of the West African Center for Banking Studies and Training (COFEB), recalled that “like of the main central banks, [her] issuing institute is concerned about digital developments to be considered in the context of monetary issuance.” More straightforward, ITFC Chief Operating Officer Nazeem NOORDALI, who also attended the workshop, emphasized that “The 4th industrial revolution will change the face of the traditional monetary system” and that “technology is already reshaping the way trade is being conducted, creating new and vast opportunities for greater efficiencies and impact.”
Benefits of digital currencies
In fact, CBDCs have many benefits, the first of these is financial inclusion which these digital currencies could promote, by "[facilitating] payments without bank accounts, contracts or smartphones [...]" as Dr. Ernest ADDISON, Governor of the Central Bank of Ghana, recalled at the press conference marking the introduction of E-Cedi. Easier to trace than banknotes, these digital currencies could also simplify the fight against fraud and money laundering. Another expected benefit is the reduction of money transfer costs, as digital currencies should allow banks in developing countries to "enhance their liquidity, efficiency in national remittances and challenge the high cost of remittances,” Folashodun SHONUBI, Deputy Governor of the Central Bank of Nigeria said at a webinar on the launch of the E-Naira, held in early September in Lagos.
The Central Bank of South Africa is already participating in a project to test international payment platforms using CBDCs - the Project Dunbar- alongside the central banks of Australia, Singapore and Malaysia. This pilot program will allow financial institutions to “transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions,” the Bank for International Settlements (BIS), which is leading the project, said in a statement released on September 2.
Potential risks
Yet, the introduction of digital currencies by central banks is not without risk. In an essay entitled "The (Near) Future of Central Bank Digital Currencies" published this year, Tim MASELA, head of the National Payments Department (NPSD) of the South African Central Bank, argues that a possible unintended consequence of CBDC could be “a loss of confidence in commercial banks and, therefore, a shift of deposits to CBDC in times of financial crisis.” This is besides the other major challenge, namely the security of transactions in the face of the threat of cyberattacks, a point strongly emphasized by many specialists. All of these threats paint a more nuanced picture of what could potentially be expected from CBDCs. "I believe that the era of central bank digital currencies will bring opportunities, but central banks must be aware of the risks involved and work to mitigate them," Folashodun SHONUBI said at the end of the above-mentioned webinar.
Continental monetary integration by 2063
One thing is for sure, the wheels are in motion and this could only be the prelude to an even more ambitious project, that of a continental digital currency, as the African Union has committed to a continent-wide monetary integration project by 2063. However, the creation of a single digital currency on the continent would allow de facto to skip the stage of the pan-African physical currency, a project often been talked about and always postponed, note many analysts. A word to the wise...
