The International Monetary Fund has issued a statement warning that Kenya runs the risk of halting the “significant” financial progress being led by banks and mobile money providers.
IMF stressed the need for the proposed Kenyan central bank digital currency (CBDC) to not have an impact on the private sector in a statement.
According to the International Monetary Fund (IMF), given Kenya’s financial sector’s impressive progress in creating digital solutions.
It is crucial that the paper highlights CBDC will “do no harm” and does not suppress such welcome digitalization developments by luring away customers from banks and other digital finance providers, raising the cost of financing for banks, or robbing banks of important information they gather through forging customer relationships.
According to the IMF’s own analysis, which also identifies the following justifications offered by central banks, Kenya is one of the 13 nations in Africa that are pursuing CBDCs.
Several justifications for seeking out CBDCs in Africa include:
- If created for offline use, CBDCs could provide financial services to persons who previously lacked bank accounts.
- In particular, during abrupt crises like a pandemic or natural disaster, CBDCs might be utilized to give targeted welfare payments.
- Remittances, which cost roughly $8 of the amount sent in Africa, can be sent across borders with the help of CBDCs.
The IMF additionally encouraged Kenya to guarantee that the CBDC will “complement” rather than “substitute” already-existing innovations.
The IMF further noted that the paper might indicate that the proposed issuance of CBDC is intended to supplement existing private-sector digital payment options rather than to replace them and to reaffirm CBK’s dedication to an open, competitive payment system.
Kenya began a public conversation about the CBDC in February 2022, and Patrick Njoroge, the governor of the Central Bank of Kenya (CBK), invited ordinary Kenyans to share their thoughts with the bank.
The validity of the CBDC in Kenya, where financial inclusion increased from 26.7 percent to 83 percent as a result of innovations from the private sector like MPESA, is one of the concerns the bank has.
The IMF expressed skepticism over the viability of the central bank providing CBDC data to assist private lenders:
The IMF continued by noting that while in theory, it could be feasible to ascertain information sharing protocols with banks to use transaction activity data in their loan portfolios, we note that it would be very unexpected for a central bank to share such information.
The advantages of doing so would only be noticeable if the use of CBDC were to substantially replace private-sector payment instruments.
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