The CBDC opportunity across the African continent – Raoul Herborg

The currencies of African nations are among the most volatile in the world. As a result, many are turning to foreign sources to store up monetary value, including cryptocurrencies. Now, the African continent has become one of the fastest adopters of crypto in the world. The Central African Republic for example became the second country in the region to adopt bitcoin as legal tender. However, bitcoin is prone to value changes with little notice, having previously dropped 30% in one day. This highlights the risk of unregulated cryptocurrencies to monetary and economic stability.

With volatility a threat, numerous governments are looking towards CBDCs as a means of regulated digital money in order to both protect consumers and ensure financial stability. It is also seen as a unique opportunity to dramatically extend financial inclusion to all members of society. Over half (57%) of the population in Africa do not have a bank account, further encouraging its uptake.

As Africa explores the value of digital currencies, countries must consider the design requirements and considerations for CBDC success, in addition to the potential benefits this new innovation could bring.

Digital drivers

Multiple CBDC projects in Africa are already underway, and the list is growing among emerging economies. According to the BIS, seven African countries are currently at various stages in CBDC exploration. This includes Morocco, Tunisia, Ghana, Kenya, South Africa and Madagascar, with Nigeria having gone live recently with the eNaira following successful trials.

The Bank of Ghana partners with Giesecke+Devrient to pilot the eCedi, a CBDC deployment, which coexists with physical cash, and has already witnessed rapid adoption. eCedi balances the transparency of transactions with the privacy of consumer data, while being fully compliant with KYC, AML/CFT regulations and requirements. It offers consumers the opportunity to make easy and intuitive payments, and will potentially support programmable use cases to enable innovation and encourage new business models.

Research undertaken by Giesecke+Devrient and OMFIF discovered in 2021 that developing markets could be ready to leapfrog directly to CBDCs compared to more mature markets, where payment systems are already relatively efficient and where consumers are less likely to see the need for a revolutionary shift. Only 14% of consumers in Germany are likely to use CBDCs, while over nine-in-ten respondents (91%) in Nigeria said they would use this new payment method. This consumer trend has proved to be reflective of the wider enthusiasm across the African continent to implement the technology.

Benefits to consumers and businesses

Consumers who use CBDCs stand to benefit from a wide range of potential uses, such as complementing payment apps, cards, mobile wallets and cash, as well as utilising a tool that encourages financial inclusion. This inclusion is made possible by the fact that a CBDC can facilitate offline payments via the use of a basic smart card, without the need for a bank account or mobile and/or internet connection.

This is key for boosting accessibility across all age groups and demographics. In Africa, 4G coverage across the continent only reached 62% of the population in 2020, leaving many without sufficient connectivity to efficiently complete online banking and transactions. Even more significant, stable electricity was only accessible to 46% of sub-Saharan Africa in 2021, leaving citizens completely unable to access digital services. Offline capabilities provided by a CBDC would therefore greatly extend accessibility in these regions.

CBDCs will also provide African governments the opportunity to implement new policies to support targeted segments of the economy. For example, programmable wallets can be implemented in specific sectors such as education, working alongside tax systems to support targeted areas of national economies. As CBDC adoption widens, this will likely lead to a fall in demand for unregulated cryptocurrencies such as bitcoin. Consumers and businesses will be protected from turbulence in valuation, providing stability to their finances.

Benefitting the wider society

The implementation of CBDC will require considerations, such as the potential for customers to carry out financial transactions without keeping deposits with banks. However, the benefits outweigh the drawbacks, and consumer enthusiasm is providing the perfect springboard for the continent of Africa to widely harness this new technology.

Critically, the introduction of CBDCs will enable African countries to lead the way in financial inclusion, particularly where citizens are unable to access basic financial services. In a broader sense, it has the potential to benefit the wider society by helping to drive digitalisation strategies and encourage growth in the digital economy, bringing benefits to all stakeholders.

By Raoul Herborg, Managing Director for the CBDC Unit at Giesecke+Devrient