Ethiopia Advances Economic Reform with Steps Toward Central Bank Digital Currency (CBDC)

The National Bank of Ethiopia (NBE) has taken significant steps in its economic reform agenda by preparing two new proclamations. One of these includes the establishment of a legal framework for introducing a central bank digital currency (CBDC).

The policy changes outlined in the NBE Proclamation aim to create a legal foundation for a CBDC “as necessary,” increase the NBE’s capital, and establish a legal basis for consumer protection. Additionally, the accompanying Banking Business Proclamation addresses the liberalization of foreign investment in banking, corrective measures for “problem” banks, and the creation of a regulatory sandbox for innovative financial solutions.

The Council of Ministers has approved these proclamations, which will soon be presented to the House of Representatives for further consideration.

Broad Reforms by the Central Bank

These proclamations are part of the government’s broader Homegrown Economic Reform Agenda. In April, the privately owned Ethiopian newspaper The Reporter highlighted the government’s interest in a CBDC, mentioning that a study would commence in June. Additionally, the NBE aims to join “the Cross Border Payment System” by December, though specifics about this system were not provided.

Ethiopia has already made strides toward economic liberalization, such as ending the state monopoly on mobile money services. The country is also utilizing blockchain-based digital infrastructure for large government payments.

Africa’s Mixed Experience with Crypto

Despite various barriers like low internet penetration, crypto adoption is progressing in several African countries. However, not all attempts have been successful. For instance, the Central African Republic adopted Bitcoin as a currency and launched a non-CBDC government cryptocurrency called the Sango, which has faced significant challenges. The Sango currency’s website is currently non-functional.

In Ethiopia, digital currencies remain illegal, although many data mining firms are leveraging the country’s cheap electricity to mine crypto. There are also plans to introduce the Web3 Fuse payment system.

Growing Interest in CBDCs Across Africa

At least 18 African countries are exploring CBDCs. Nigeria has experienced mixed results with its eNaira, launched in 2022 as the world’s second live CBDC. Zimbabwe has used a government-issued gold-based token as the foundation for introducing its latest currency.

As Ethiopia progresses with its economic reform agenda, the introduction of a CBDC represents a significant step towards modernizing its financial system and fostering greater economic resilience. The upcoming legislative considerations will be pivotal in shaping the future of digital currency in the country.