How 19 African central banks are considering digital money use

Mobile money: A battle ground for payment service providers

What you need to know:

  • As digital currencies take the world by storm, many countries are exploring the idea of issuing central bank governed e-currencies. The firm behind much of this effort is Ireland and US-based eCurrency Mint Inc. Joseph Burite caught up with its president for Africa Markets, Athu A. Karume.

How would you describe the landscape for Central Bank Digital Currency (CBDC) on the continent?
ECurrency has been working with more than 40 central banks to define and study the motivations, design considerations, and the implications of Central Bank Digital Currency (CBDC) since 2011. Among them are African central banks that are exploring the use of CBDC for use as legal tender alongside notes and coins for retail, wholesale, and cross-border applications. 
The interest remains high as most recently 19 African central banks responded to the survey that served as a basis for a Bank for International Settlements (BIS) report published on November 24, 2022, and all of them stated that they were actively interested in CBDC. 

The key motivation factor for African central banks is achieving greater payment system efficiency. The central banks also place more emphasis on financial inclusion. These factors could foster CBDC issuance and favour adoption. Moreover, the SADC region has been highly active in exploring the use of a CBDC for cross-border payments in the region. 
In a meeting hosted in Kenya recently, 13 central banks discussed collaborations on a cross-border CBDC and the impact it would have on compliance with regulatory standards. A well-designed CBDC will allow seamless and efficient cross-border payments using local currencies while reinforcing currency sovereignty and autonomy.

What role is your company playing in this?
eCurrency provides central banks with DSC3 technology which is designed to reinforce central banks as the authorities, as origins of trust and sole issuers of sovereign currencies, while blockchain and other technologies associated with CBDC are fundamentally designed to eliminate central authority. DSC3 enables central banks to issue a safe and efficient, and secure CBDC as a digital bearer instrument so that the best attributes of cash are preserved. DSC3 utilises centrally governed, physically distributed databases running on proven technologies.
DSC3 technology incorporates multiple layers of certified symmetric and asymmetric cryptography and hardware security functions, making CBDC resistant to hacking, including future quantum computing attacks, to ensure non-counterfeitable CBDC. As a result, DSC3:
• Delivers unambiguous settlement finality in CBDC bearer instrument representing a direct claim, even between offline devices. 

• Interoperates with existing conventional and novel payment systems making CBDC universally accessible and accepted instantly to millions of people and merchants through mobile phones and merchant terminals, boosting financial inclusion.
• Can scale to handle millions of transactions per second, more than sufficient for a future entirely digital economy. Furthermore, DSC3 technology meets the two-tier CBDC model, AML, privacy, and other operational and policy requirements for use as legal tender alongside notes and coins for retail, wholesale, and cross-border applications. 
DSC3 is designed to be highly efficient and energy friendly. DSC3 boasts minimal energy consumption and computing power, exhibits no scalability issues or double-spending, is privacy compliant and has no offline limitations as that of blockchain-based CBDC. eCurrency DSC3 technology has been proven in production environments since 2014. It completed a pilot by Bank of Jamaica in 2021 and it is being roll out on-boarding all deposit taking institutions and selected payment service providers. 

The opportunities are clear, but what challenges are you having to overcome to exploit them?
Africa’s payment systems have remained one of the world’s costliest and least accessible, particularly to the unbanked rural populations. Many of the central bankers interviewed in the BIS report have greater faith in CBDC and believe CBDCs can provide a far superior solution to current payment systems. 
The challenge is how to distribute CBDCs and make CBDCs widely accessible and accepted efficiently. Sub-Saharan Africa accounts for 45.2 percent of the global 1.2 billion registered mobile money accounts (as of 2020). Mobile money can play an important companion role to CBDC in sub-Saharan Africa.
CBDCs will be augmented and accelerated by existing mobile money services utilising the existing money mobile infrastructure built by banks, non-banks, and payment service providers (PSPs). 

PSPs already providing mobile money services can interface their existing payment systems (wallet systems) with the open CBDC platform to upgrade or extend their services to enable their users to hold CBDC, make payments in CBDC, disburse expenses in CBDC and accept payments in CBDC in domestic retail, wholesale, and cross-border use cases. 
Therefore, CBDC can reuse and leverage existing investments, operations, and channels to instantly make CBDC available to millions of users. That will also open up other services requiring reliable and easy access to the most trusted payment instrument, CBDC. 
Central banks need to design right CBDC models, policies and select the right technologies that will create favourable factors to increase PSP and general public adoption. However, we see a bright future where CBDCs can revolutionise digital African economies, just like physical central bank money revolutionised physical economies centuries ago. 

What milestones have been attained regarding CBDC in Africa? 
Africa is a hotbed of CBDC development. For example with Nigeria having issued a retail CBDC, eNaira, Ghana having a retail CBDC project, eCedi, in the pilot stage, and South Africa has completed two phases a project for a wholesale CBDC named project Khokha. 

The interest to pilot CBDC remains high within other African central banks. Botswana, Eswatini, Kenya, Madagascar, Mauritius, Morocco, Namibia, Rwanda, Tanzania, Tunisia, Uganda, Zambia, and Zimbabwe are all currently in the research stage of CBDC development, which implies they have established working groups to explore the use cases, impact, and feasibility of CBDC. 
Some of these countries are publishing their respective studies on CBDC, and their reports are due out imminently. In addition, eCurrency has been recently awarded a new project to pilot and deploy CBDC in an Africa country and we expect more African central banks to follow suit to pilot and deploy CBDCs in the next couple of years.