This chapter presents a discussion on what a central bank digital currency (CBDC) can achieve in African countries and what a central bank digital currency may not achieve in African countries. The study shows that a central bank digital currency can achieve the following: CBDC can become a monetary policy tool; it can reduce the size of the informal economy; it can increase financial inclusion; it can increase digital financial literacy; it can reduce the circulation of counterfeit paper money; it can deepen existing payments system; it can improve social programmes and targeted welfare; it will increase transaction monitoring and surveillance; it can address tax evasion and increase tax revenue in African countries. The study also shows that a central bank digital currency may not completely replace cash in African countries; the issuance and use of CBDC won't make African countries earn a ‘developed country' status; CBDC adoption may not stop institutional corruption; CBDC adoption will not stop illicit activities in African countries; and CBDC adoption may not reduce the level of poverty in African countries.
Top1. Introduction
The rapid rise of private digital currencies or cryptocurrencies, and the widespread adoption of private digital currencies by citizens in African countries, particularly in Nigeria and Kenya, have led African monetary authorities to assess the risks associated with using private digital currencies as a medium of exchange for economic activities. The monetary authorities in many African countries have raised concerns that private digital currencies or cryptocurrencies are too volatile which make them unfit to be used as money, and that cryptocurrencies are often used to hide illegal and criminal activities. The monetary authorities in North African countries have responded to the threat posed by cryptocurrencies by placing an outright ban on cryptocurrencies such as Egypt, Morocco, and Algeria. Meanwhile, the central bank in other African countries have either barred regulated financial institutions from facilitating cryptocurrency transactions such as Nigeria or have issued warnings about the risks of cryptocurrencies such as South Africa, Kenya, Uganda, Tanzania, Ghana, Tunisia and Rwanda. Although some African central banks resist cryptocurrency, they have been quite open-minded about the idea of issuing a central bank digital currency. A central bank digital currency is digital money issued by the central bank and is a liability of the issuing central bank (Ward and Rochemont, 2019; Ozili, 2023a).
Monetary authorities in some African countries have begun to research central bank digital currency, and plan to adopt a national central bank digital currency in the future as a counter-reaction to cryptocurrency while harnessing the potential benefits of a central bank digital currency for their economies. Analysts have offered mixed opinions on whether central bank digital currencies will become successful or a total failure (Ozili, 2024a). Some have argued that developed countries, such as Australia, Canada, and the United States, that have a fast, efficient, and reliable payment system infrastructure do not need a central bank digital currency as it will be a duplication of existing wholesale and retail payment products (Bjerg and Nielsen, 2018). Others have argued that adopting a central bank digital currency can allow central banks to bypass financial intermediaries to reach the people, but the consequence is that the future of financial intermediaries in the financial system may become uncertain (Wang and Gao, 2024). Others have also argued that adopting a central bank digital currency can save money for the government by reducing the cost of printing and managing cash or paper money (Babin et al, 2022). Despite these arguments, many central banks, such as the Reserve Bank of India, Bank of Ghana, the Central Bank of Tanzania, etc., have shown interest in issuing a central bank digital currency so as not to be left behind in the race to issue to a central bank digital currency.
In Africa, many central banks have shown interest in adopting a central bank digital currency (Ozili, 2023b), particularly, Nigeria, South Africa, Ghana, and Senegal. Most central banks in the region are studying central bank digital currency to understand it, to determine the best use case of CBDC, and to determine the design features that meet the payments need of their countries. Policy makers in African countries also want to understand what a CBDC can achieve and what a CBDC may not achieve in African countries. Such understanding is important as it can help to tame the over-optimism that is evident among CBDC enthusiasts in central bank policy circles in African countries. Consequently, the objective of this article is to discuss what a central bank digital currency (CBDC) can achieve in African countries and what a central bank digital currency may not achieve in African countries.