Money is a vital tool in our modern society.
From the beginnings of barter, where physical objects were used to facilitate exchange, to the modern world, where paper notes and coins are legal tender, society’s need to find some form of instrument to exchange goods and services remains vital. Advances in modern digital technologies are giving rise to digital payments; with the emergence of digital currencies issued by individuals, including cryptocurrency. These developments have given rise to the need for central banks to consider issuing their own digital currency, known as Central Bank Digital Currency (CBDC). These can be described as digital legal tender issued by a central bank, pegged to the value of the issuing country’s fiat currency and regulated under its monetary and fiscal system.
The Bank of Ghana announced plans to launch a digital currency known as eCedi in 2019, and in 2022 it released a 32-page design document that provides information on the vision of eCedi, key motivations, expected benefits and design principles, including governance and accessibility, interoperability, required infrastructure and security. The e-Cedi is designed as a digital replica of Ghana cedi banknotes and coins. It is designed as a retail token-based CBDC stored in a digital wallet, convertible into Ghana cedis as cash or cash deposit on a 1:1 ratio. owner of e-Cedis can exchange them for physical cedis and use them for a variety of payments.
The eCedi has various advantages; among them, the potential for more efficient and secure payments, lower transaction costs and faster processing times. Also, it can save the central bank money because it bypasses the high price of printing banknotes and minting coins abroad. It also allows citizens to directly consume central bank digital products, which speeds up settlement speed, especially when it comes to real-time payments. With the support of the central bank, the eCedi holds a stable value against the cryptocurrency, which is characterized by highly volatile prices. One of the economic challenges that eCedi can help address is the huge number of unbanked and underbanked people in Ghana, as it can serve as a powerful tool for financial inclusion by increasing access to digital payments and by creating banking-type services at reduced or no cost. accounts.
There are several disadvantages associated with the eCedi. Cash offers a high level of privacy and anonymity since there is no way to monitor cash transactions; however, with eCedi it will be possible to track and trace every transaction. Since the central bank is a government entity, some people just aren’t keen on the idea of a government entity being able to access information about their spending habits. Although there are a number of suggested safeguard mechanisms to deal with these privacy issues, some believe that they do not go far enough and that the risk remains and the central bank of Ghana should strive to ensure better anonymity, even better than what commercial banks or other digital payment providers currently offer. Also, it is unclear whether the eCedi will be accepted across borders as a means of payment, especially in international commerce and transactions. One of the main reasons for issuing eCedi is its potential to serve as an alternative to cryptocurrency; nevertheless, it does not have the same characteristics as cryptocurrency, including its lack of central control and its distributive nature. Another challenge with eCedi is that it may position the Bank of Ghana as a direct competitor to digital payment providers, especially mobile money, which means possible revenue loss for players in the fintech ecosystem. Additionally, for the banking industry, if consumers increase their participation in CBDCs, this can provide direct competition to in-person banking deposits. Finally, there is no guarantee that consumers will be interested in accepting eCedi as it offers no perceived advantage over existing digital payments, meaning it may not be widely adopted.
In conclusion, eCedi offers many benefits and innovations needed to support our rapidly evolving digital payments ecosystem; at the same time, it faces many challenges. By deciding to pilot the eCedi, the Central Bank of Ghana is positioning itself as a digital currency pioneer, which means it can learn the ropes over time on how to effectively manage CBDC, evolve standards and mechanisms to support its adoption.
Kwami Ahiabenu, II (Ph.D.) is a technology innovation consultant