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Central Bank of Kenya exploring the possibility of CBDCs

The Central Bank of Kenya (CBK) has announced its plans with foreign central banks about the introduction of central bank digital currency (CBDC) in the country. Just last year, some companies in Nairobi, Kenya started accepting Bitcoin payments despite the warnings of their government regarding the volatility of cryptocurrencies.

At first, there were only about 40,000 people transacting using Bitcoin because the CBK has forbidden banks from getting involved in virtual currencies. They aren’t authorized to open accounts for people that use digital assets as a mode of payment.

Kenya does not yet regulate cryptocurrencies, similar to other countries in Africa. However, the Kenya Revenue Authority had urged the central bank to accept digital assets for the purpose of revenue collection.

Now, in just a span of one year, the crypto transactions in the country have grown rapidly and made Kenya the third-biggest bitcoin market in Africa. Africa’s cryptocurrency transfers for each month was less than $10,000 last year. However, it shot up by 55% and reached $316 in June 2020.

During the DC Fintech Week 2020, the CBK governor Dr Patrick Njoroge stated: ‘We [the CBK] are already having discussions with other global players, in various ways, around the introduction of Central Bank Digital Currencies. The push comes as a result of mushrooming of private cryptocurrencies and we are already feeling left out and need to create our own space.’

The bank is investigating how it can be supported by the CBDC to fulfil its mandates and that includes the stabilization of the Kenyan community. Njoroge expressed that the institution’s core concern is money laundering and the funding of illegal activities. He seemed less persuaded, however, that the aim for digital assets is to become genuinely cashless. He describes innovations as merely an environment of less cash.

‘We will look at it [a CBDC] and see whether there is potential for enabling us to do our work better,’ Njoroge stated.

As the central bank claims, the CBDC will play a major role in the progress towards reducing the use of fiat money for payments. Though the use of cash in the country has decreased significantly, Njoroge said it would take a long time before Kenya becomes a truly cashless economy.

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