• Sun. Aug 14th, 2022

Central Bank of Kenya: State-backed digital currency won’t solve all financial challenges

ByHazel R. Lang

Apr 2, 2022

A Central Bank Digital Currency (CBDC) is not the magic bullet that will solve all the financial challenges we face today, says Central Bank of Kenya Governor Dr. Patrick Njoroge. On the contrary, the CBDC could exacerbate some of these challenges if not managed properly.

Speaking during a panel discussion with other banking officials at the Bank for International Settlements (BIS) Innovation Summit, Njoroge said central banks must first address the challenges they face directly before launching their CBDCs.

“Let’s not look at CBDCs as the silver bullet to all the problems we have. Rather, deal with issues directly,” he said.

Njoroge pointed out that one of the challenges central banks including the CBK face is financial exclusion, more so with women. Such a challenge is caused by several diverse factors, including cultural norms in which women have less access to education and even mobile phones, hindering their access to basic financial services.

“This problem will always remain. You cannot solve it with a CBDC. And indeed, if you move into this world [of CBDCs]this problem will become much more acute,” the governor said.

Unlike most of its peers, the CBK does not aim for financial inclusion through a CBDC, which is the promise most central banks made when developing their digital currencies. Kenya has one of the highest financial inclusion rates among its peers. The ubiquity of mobile payments through M-Pesa ensures that almost all adults have access to basic financial services.

As Njoroge revealed, Kenya has “achieved diminishing returns” in promoting financial inclusion.

Governor says central bankers are very concerned about two issues when considering CBDCsfinancial stability and control of monetary policy. This is why most of them objected to digital assets which they believed would undermine both of these issues.

“There needs to be someone watching financial stability and these other broader monetary policy issues,” Njoroge said.

The CBK released a consultation document in February in which it called for public comment on the introduction of a CBDC. He outlined the pros and cons of the digital shilling as well as the sectors that would be most affected.

More recently, Governor Njoroge expressed concern that low smartphone penetration in Kenya could derail the CBDC rollout. The East African country has a smartphone penetration of 44%, which the governor says could further widen the gap in financial inclusion if the CBK launches the digital shilling, which would only be available on 4G smartphones.

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