The Central Bank of Kenya (CBK) recently announced its decision regarding the implementation of a Central Bank Digital Currency (CBDC) in the country. After carefully reviewing public comments and considering global developments, the CBK has concluded that the implementation of a CBDC in Kenya is not a compelling priority in the short to medium term. This decision comes amidst ongoing discussions on digital currencies and the proposed inclusion of digital assets in the country’s tax regime through the 2023 Finance Bill.
The Central Bank said that last year’s call for public comments on the potential benefits, risks, and policy considerations of a CBDC in Kenya garnered significant attention. Over 100 responses were received from a diverse range of individuals, public institutions, commercial banks, Payment Service Providers (PSPs), technology providers, academia, the legal fraternity, and international development partners.
According to CBK, respondents highlighted the need to consider Kenya’s highly developed digital payments ecosystem and the high level of financial inclusion. Additionally, they emphasized the importance of carefully assessing the risks associated with a CBDC, particularly in light of recent instability in the global crypto assets market.
The CBK also acknowledged the ongoing research and implementation of CBDC projects by the Bank for International Settlements (BIS), the International Monetary Fund (IMF), and other central banks worldwide. However, it noted that the allure of CBDCs is fading on the global stage. Central banks that were early adopters of CBDCs have faced challenges in implementation, leading to a cautious approach among major global central banks.
Addressing Pain Points and Innovative Solutions
Kenya boasts a highly developed digital payments ecosystem, and the CBK acknowledges that existing innovative solutions can continue to address the country’s pain points in payments. The CBK recognizes that while a CBDC may offer benefits for cross-border transactions, it is essential to carefully consider the associated risks. The recent proposal by Kenya’s Ministry of National Treasury & Economic Planning to include digital assets, such as Bitcoin and non-fungible tokens (NFTs), in the tax regime through the 2023 Finance Bill adds another layer of complexity to the digital asset landscape.
Taxation of Digital Assets
The Finance Bill proposes that individuals involved in transactions of digital assets, including NFTs and cryptocurrencies, pay taxes. Digital assets are defined as intangible items of value generated through cryptographic or other means, encompassing non-fungible tokens or similar tokens. The proposed tax rate for digital asset transactions is set at three percent of the exchange or transfer value.
The CBK’s stance on CBDCs remains consistent with its cautious approach to digital assets. Despite the proposed inclusion of digital assets in the tax regime, the CBK has repeatedly warned against crypto transactions by financial institutions and the general public.
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