CBK moves closer to launching digital currency as trend grows

Central Bank Governor Patrick Njoroge [Reuters, Stringer]

Central Bank of Kenya (CBK) has began collecting views from the public on the adoption of digital currencies as the plan to introduce official cryptocurrency inches closer to reality. 

In a discussion paper released yesterday, CBK said a Central Bank Digital Currency (CBDC) could assist in processing large and retail payments and ease cross-border money transfers.

“A CBDC could enhance financial stability in a jurisdiction by contributing to resilience in payments,” said the CBK in the policy document.

“By providing a new method of making payments, a CBDC could diversify the range of payments options.”

CBK further says introducing the digital currency backed by the regulator could improve stability in the financial system by allowing individuals and institutions to settle directly in central bank money as opposed to bank deposits.

“This would significantly reduce the concentration of liquidity and credit risk in payment systems, in turn reducing systemic importance of large banks and payment service providers,” it said.

However, the digital currency could put the industry regulator directly in competition with commercial banks, putting a strain on the existing regulatory framework.

This is the latest policy document the CBK has produced on the adoption of digital currencies and brings Kenya closer to becoming the second African country after Nigeria, which introduced a CBDC in October last year dubbed the eNaira.

CBK has, however, remained largely cautious on introducing digital currencies. In 2017, CBK Governor Patrick Njoroge likened Bitcoin to a potential Ponzi scheme owing to its high volatility.