The South African Reserve Bank is experimenting with a wholesale CBDC, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha. The country is also participating in a cross-border pilot with the central banks of Australia, Malaysia and Singapore.
The Bank of Ghana, by contrast, is testing a general purpose or retail CBDC, the e-Cedi, which can be used by anyone with either a digital wallet app or a contactless smart card that can be used offline.
Some of the reasons given for chasing CBDCs include:
CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use
CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster
CBDCs can facilitate cross-border transfers and payments, including remittances which cost about 8$ of the amount sent in Africa
However, IMF says that governments will need to improve access to digital infrastructure such as a phone or internet connectivity.
The international body also says central banks will need to develop the expertise and technical capacity to manage the risks to data privacy, including from potential cyber-attacks, and to financial integrity. There is also a risk that citizens pull too much money out of banks to purchase CBDCs, affecting banks’ ability to lend.
Central banks will also need to consider how CBDCs affect the private industry for digital payment services, which has made important strides in promoting financial inclusion through mobile money.