Kenyan Central Bank Document Discusses Benefits and Risks Posed by CBDC — Public Asked to Comment – Bitcoin News

Kenya’s central bank has acknowledged in a recently released document that a central bank digital currency could potentially benefit the country’s financial system. However, the bank warned that there could be risks associated with the introduction of a CBDC.

CBDC’s Impact on Financial Stability

The Central Bank of Kenya (CBK) has suggested in a discussion paper that a central bank digital currency (CBDC) could potentially lead to enhanced cross-border payments and “efficiency gains.” However, in a recently released document that discusses CBDCs, the bank acknowledges such digital currencies could also pose risks to the financial system.

For instance, in the document, the bank cites “unknowns” as to how the digital currency would impact central banks’ core functions of monetary policy, financial stability, and payment systems oversight. CBK also rehashes the argument of financial disintermediation that is often used by CBDC opponents. This document says:

If significant deposit balances are moved from bank deposits to CBDC, banks’ ability for credit creation could get constrained. The impact of central banks not providing credit to the private economy must be understood.

The document added that “as banks lose a significant volume of low-cost transaction deposits” this may lead to an increase in the cost of credit. The central bank, meanwhile, claimed that launching a CBDC could possibly lead to financial exclusion “if the required technological infrastructure and technical literacy is not accessible to all sections of the public.”

Public input

While the CBK argues in the document “that the potential benefits of a Kenyan CBDC remain unclear” it nonetheless emphasizes the ordinary Kenyan’s perspective on this topic needs to be heard.

“In its pursuit to address the aforementioned questions, CBK reiterates that people must be at the centre of assessing any innovation. The usefulness of technology does not lie in its uniqueness but in its ability to solve a pressing societal problem,” the central bank explained.

Meanwhile, in justifying the plan to seek the public’s input, the CBK points to the rise of mobile money which “placed our country as a cradle of innovation in Africa.” According to the central bank, mobile money has been a success in Kenya because it addressed the challenge of individuals transferring money to family members.

The CBDC must, in the same way, be built on functionality, as stated by the central bank.
The problem it addresses for people rather than the technology behind them.

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Terence Zimwara

Terence Zimwara was a Zimbabwe award-winning journalist and author. He is a prolific writer on the economic woes of African countries, as well as digital currencies that can be used to provide an escape path for Africans.