The Central bank of Kenya (CBK), has published a discussion paper on its Central Bank Digital Currency (CBDC), while seeking public comments on the potential benefits and risks, and related policy considerations, of introducing a CBDC in Kenya.
In s statement, the Bank said the discussion paper will examine the applicability of a potential Central Bank Digital Currency (CBDC) in Kenya.
“It is part of CBK’s initiatives to ensure informed policy decisions regarding innovations. The Discussion Paper invites comments from the public to be considered when assessing the potential use case for CBDC in Kenya.”
What is CBDC?
CBDC is an electronic form of central bank money that can be used by households and businesses to make payments and store value.
Unlike privately-issued cryptocurrencies (such as Bitcoin or Ethereum) and stablecoins (cryptoassets whose value is linked to another asset), CBDC is a form of central bank money issued and backed by a central bank.
The Central Bank of Kenya’s Approach to CBDC
The regulator said it has been closely monitoring these developments globally which prompted the CBK to prepare the Discussion Paper that outlines the evolution of payments globally and in Kenya and discusses recent digital payment methods including electronic money, CBDC, stable coins and other cryptocurrencies.
“It outlines Kenya’s payment landscape and assesses the potential applicability of CBDC. Further, it highlights the potential opportunities and risks presented by CBDC.” The Bank noted in a statement.
The central bank will collect comments on the issue via an online form for 120 days.
The governor of the Central Bank Dr Patrick Njoroge previously said they were exploring the use of central bank digital currency (CBDC) to settle cross-border payments.
In the white paper, the Central Bank notes that a CBDC issued by the central bank would help avoid the risks of new forms or private money creation, support a resilient and efficient payments landscape, enhanced cross border payments, customer protection while meeting the needs of a digital economy.
Use case for a Kenyan CBDC
According to the white paper, 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.
The regulator says that the consideration to introduce a CBDC in the payments system in Kenya could target cost reduction, interoperability and enhancing cross-border payments.
“Existing proposals indicate that CBDC might hold the potential to achieve much needed interoperability.”
The CBK has not yet arrived at a decision on whether to introduce CBDC in the Kenya. The latest discussion paper is intended to kick start a dialogue and be a basis for further research.