The East African Community (EAC) states are exploring the potential of a central bank digital currency (CBDC) as they move to upgrade the struggling East African Payment System (EAPS) which was launched in May 2014.
The potential for a CBDC is hopefully expected to end reluctance by the member countries to trade in each others’ currencies.
Speaking during a consultancy call for a feasibility study on the planned upgrade of the EAPS, the Secretariat, EAC, said:
“Review recent advances in technology and innovations that have created the potential for new payment infrastructures and arrangements that could be applied to cross-border payments.
The consultant will, therefore, conduct an exploratory scoping review of such developments, as well as emerging technologies and their adoption, including but not limited to technologies involving the use of Central Bank Digital Currencies.”
– Secretariat, The East African Community (EAC)
A CBDC provides a preferred option for the EAC states in line with a target to attain a single currency for the region by 2024 in line with the EAC bloc’s Monetary Union Protocol.
Speaking on the challenges of having a variety of currencies and why a single currency is proving attractive, the Secretariat added:
“The original funding model where participants sourced for funding of other EAC currencies from the market is proving expensive due to unavailability of partner States’ currencies in the local market.
A lack of centralised user support means that resolution of any problems with the usage of the system takes a long time, which impacts negatively on the operations of the system.
The fact the system does not operate on a single platform also means that centralised liquidity and collateral management is not possible.”
– Secretariat, East African Community (EAC)
The EAC is home to over 180 million people with a combined GDP of $193 billion. It is also considered one of the fastest growing regional economic blocs in the world. An East African Federation consisting of the 6 countries has also been proposed.
In 2021, a number of global and African states have announced that they’re either exploring or undertaking feasibility studies on CBDCs, a move that is likely going to see increased adoption across other nations taking similar direction.