Geographies in Depth

More African central banks are exploring digital currencies. Here's why

Several African banks are exploring the use of central bank digital currencies (CBDCs).

Several African banks are exploring the use of central bank digital currencies (CBDCs). Image: Unsplash/Olumide Bamgbelu

Habtamu Fuje
Economist in the Africa Department, IMF
Saad Quayyum
Economist in the Strategy, Policy and Review Department, IMF
Franck Ouattara
Research Analyst in the Regional Studies Division, IMF
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Geographies in Depth?
The Big Picture
Explore and monitor how Financial and Monetary Systems is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Financial and Monetary Systems

  • Several sub-Saharan African central banks are exploring or piloting new digital currencies, as this chart shows.
  • The schemes aim to promote financial inclusion, as well as distribute targeted welfare payments and facilitate cross-border transfers and payments.
  • But, governments will need to improve access to digital infrastructures, and central banks will need to develop the capacity to ensure data privacy and financial integrity before CBDCs are introduced.

Several sub-Saharan African central banks are exploring or in the pilot phase of a digital currency, following Nigeria’s October introduction of e-Naira. Nigeria was the second country after the Bahamas to roll out a CBDC.

CBDCs are digital versions of cash that are more secure and less volatile than crypto assets because they are issued and regulated by central banks. As the Chart of the Week shows, South Africa and Ghana are running pilots while other countries are in the research phase.

Map of African countries exploring the use of central bank digital currencies (CBDCs)
African countries exploring the use of central bank digital currencies (CBDCs). Image: Central Bank Digital Currencies Tracker

CBDCs in South Africa

The South African Reserve Bank is experimenting with a wholesale CBDC, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha. The country is also participating in a cross-border pilot with the central banks of Australia, Malaysia, and Singapore.

The Bank of Ghana, by contrast, is testing a general purpose or retail CBDC, the e-Cedi, which can be used by anyone with either a digital wallet app or a contactless smart card that can be used offline.

Countries have different motives for issuing central bank digital currencies but for the region there are some potentially important benefits.

The first is promoting financial inclusion. CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use. In remote areas without internet access, digital transactions can be made at little or no cost using simple feature phones.

Discover

What is the Forum doing to improve the global banking system?

CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster.

They can also facilitate cross-border transfers and payments. Sub-Saharan Africa is the most expensive region to send and receive money, with an average cost of just under 8 percent of the transfer amount. Central bank digital currencies could make sending remittances easier, faster, and cheaper by shortening payment chains and creating more competition among service providers. Faster clearance of cross-border payments would help boost trade within the region and with the rest of the world.

There are risks and challenges that need to be considered before issuing a CBDC, however. Governments will need to improve access to digital infrastructure such as a phone or internet connectivity. While the region has made significant strides, more investment is needed.

Have you read?

More broadly, central banks will need to develop the expertise and technical capacity to manage the risks to data privacy, including from potential cyber-attacks, and to financial integrity, which will require countries to strengthen their national identification systems so know-your-customer requirements are more easily enforced. There is also a risk that citizens pull too much money out of banks to purchase CBDCs, affecting banks’ ability to lend. This is especially a problem for countries with unstable financial systems.

Central banks will also need to consider how CBDCs affect the private industry for digital payment services, which has made important strides in promoting financial inclusion through mobile money.

Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Geographies in DepthFinancial and Monetary Systems
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

How Namibia is helping its most sustainable companies compete globally

Rauha Nangula Uaandja

June 20, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum