IMF (International Monetary Fund) has come out to warn that Kenya risks disrupting the ‘remarkable’ financial progress that has been spearheaded by banks and mobile money players.
In a statement, IMF said it was important that the Kenya central bank digital currency (CBDC), which is under consideration, does not affect the private sector:
“Given Kenya’s financial sector’s remarkable progress in developing digital solutions, it is important that the paper emphasizes CBDC will ‘do no harm’ and does not stifle such welcome digitalisation developments by taking away customers of banks and other digital finance providers, increasing the cost of financing for banks, or depriving banks of valuable information they obtain through establishing customer relations.”
– International Monetary Fund (IMF)
Kenya is one of 13 countries in Africa which are pursuing CBDCs, according to IMF’s own analysis, which also finds the following reasons given by central banks.
Some of the reasons given for chasing CBDCs in Africa 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
The IMF also urged Kenya to offer assurances that the CBDC would not ‘substitute’ existing innovations, but instead, would ‘complement.’
“The paper could state the intent of potential issuance of CBDC is to complement rather than substitute existing private-sector digital payment solutions, and affirm CBK’s commitment to an open, competitive payment system.”
In February 2022, Kenya opened a public discussion about the CBDC, with the Central Bank of Kenya (CBK) Governor, Patrick Njoroge, asking regular Kenyans to submit comments to the bank.
One of the issues of concern to the bank is whether the CBDC has merit in Kenya, where financial inclusion grew from 26.7% to 83% thanks to private sector innovations such as MPESA.
IMF also raised doubts over the feasibility of the central bank sharing CBDC data to support private lenders:
“In the case of a widely adopted retail CBDC, while in principle it might be possible to establish information sharing protocols with banks to use transaction activity data in making their lending decisions, we note that it would be very unusual for a central bank to share such information; and the benefits of doing so would only be significant if usage of CBDC were to lead to large-scale substitution of private-sector payment instruments.” – IMF