In recent news, Kenya’s Central Bank (CBK) has expressed a somewhat cautious stance regarding Central Bank Digital Currencies (CBDCs), stating that the allure of CBDCs is fading globally. The bank does not consider CBDCs as a top priority in the short to medium term, but they have not entirely dismissed the idea of a digital Kenyan shilling.
Following a discussion paper issued in February, CBK sought feedback on CBDCs and received over 100 responses from various individuals, commercial banks, and payment service providers. Many respondents cited potential benefits such as lower transaction costs, improved foreign exchange rates, and increased transparency.
However, there are also notable downsides to consider. Financial exclusion remains a key concern, as a significant majority (87%) of respondents believe that it’s the central bank’s responsibility to ensure that all citizens have access to the technology required for adopting digital currency.
Other risks mentioned by CBK include disintermediation of banks, high implementation costs, and vulnerability to cyberattacks. The bank has also observed challenges faced by countries that have already launched CBDCs, leading them to decide on a more measured approach. CBK stated, “Major global central banks have deferred the decision on the adoption of CBDCs. This measured approach is consistent with the approach that CBK is taking.”
Currently, 11 countries, mainly Caribbean nations, have developed CBDCs, according to the Atlantic Council’s CBDC tracker. As Kenya’s Central Bank continues to monitor global CBDC developments, they will collaborate with central banks that have issued their digital currencies.
This news raises questions about the future of CBDCs and their viability in the global financial landscape. On one hand, there are clear benefits, such as reduced transaction costs and increased transparency, which are high on the agenda for many financial institutions. On the other hand, potential drawbacks, including the risk of financial exclusion and increased vulnerability to cyberattacks, are significant obstacles that must be addressed.
Given CBK’s wait-and-see approach for CBDCs, it remains to be seen if other central banks will follow suit or continue to explore and develop digital currencies. Ultimately, the future of CBDCs will be determined by the actions of central banks worldwide and their ability to work together to find solutions that address both the benefits and risks associated with this emerging technology.
Source: Blockworks
