The Central Bank of Kenya has announced that the appeal of a central bank digital currency (CBDC) is waning and will continue to monitor its development closely.
In a statement released on Friday, the bank said that “pain points” in the country’s payments system could be addressed with innovative solutions built around existing ecosystems, while a CBDC may not be a prominent priority.
The central bank received more than 100 comments from respondents representing nine countries, including representatives from commercial banks and institutions, in consultations that began in February.
Respondents highlighted the benefits of a CBDC, such as increased efficiency, as well as the risks associated with it, including high implementation costs and financial exclusion.
However, the bank believes that countries looking to issue CBDCs face “hurdles to deployment,” and recent volatility in the cryptocurrency market has heightened concerns.
As such, the attractiveness of CBDCs is waning. The central bank will continue to monitor the development of CBDC and gather information for future evaluation.
The announcement by the Central Bank of Kenya reflects a cautious approach to CBDC implementation despite its potential advantages. While recognizing the benefits of increased efficiency and financial inclusion, the bank also noted the challenges posed by deploying digital currencies.
Comments received during the consultation highlighted the need to consider the overall ecosystem and potential risks associated with CBDCs, including their impact on financial stability and the wider economy. The bank’s decision to closely monitor the development of a CBDC demonstrates its commitment to thoroughly assess its implications before moving forward.
The focus of central banks on innovative solutions in the existing payment system ecosystem suggests that they prefer incremental improvements rather than a fundamental move towards CBDC.
Solving pain points through innovation, the bank aims to improve efficiency and promote financial inclusion without the need for a separate digital currency.
Concerns about deployment hurdles and cryptocurrency market volatility are valid considerations. Recent volatility in the value of cryptocurrencies, coupled with regulatory uncertainty, has created a sense of caution among policymakers and financial institutions around the world.
While other countries are exploring the potential of CBDCs and even launching pilot projects, the Kenyan central bank’s approach reflects a prudent stance that puts stability and risk management first.
By keeping a close eye on CBDC developments, the bank can glean valuable insights from other countries’ experiences and make informed decisions going forward.