Smartphone hitch hits CBK’s digital shilling plan

Economy

Smartphone hitch hits CBK’s digital shilling plan


The CBK has warned that the lack of access to smartphones by more than half of mobile users in the country will hamper the rollout of its proposed digital currency. FILE PHOTO | NMG

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Summary

  • CBK Governor Patrick Njoroge said in an interview that the smartphone hitch may force the bank to delay the rollout of central bank digital currency (CBDC).
  • Official data shows that 33 million or 56% of the 59 million mobile phone devices are feature phones, making it difficult for half of subscribers to transact through the CBDC.
  • Safaricom, in partnership with Google, has made an offer to sell one million affordable digital devices, with customers paying just 20 shillings a day for nine months.

The Central Bank of Kenya (CBK) has warned that the lack of smartphone access by more than half of the country’s mobile users will hamper the rollout of its proposed digital currency which requires internet access.

CBK Governor Patrick Njoroge said in an interview that the smartphone hitch could force the bank to delay the rollout of central bank digital currency (CBDC) – a virtual version of the shilling that will trade on an individual basis with physical cash.

Official data shows that 33 million or 56% of the 59 million mobile phone devices are feature phones, making it difficult for half of subscribers to transact through the CBDC.

Safaricom #ticker: SCOM, in partnership with Google, offered one million affordable digital sets for sale, with customers paying as little as 20 shillings a day for nine months, with the aim of switching around four million 2G phones and 3G to 4G.

Dr Njoroge said the use of digital currency on 4G-enabled phones would harm Kenya’s financial inclusion and effectively prevent half of the population from transacting in the CBDC, which aims to facilitate payments and reduce transaction costs.

“The CBDC will have a minimum viable technology requirement, which could be some kind of fourth generation (4G) environment. There is an argument to be made that such a development could lead to more financial exclusion, so that some people might fall out of the financial system just because we have adopted a CBDC… This is something we need to do careful,” Dr Njoroge said. .

“So we can decide to wait a bit longer until everyone catches up, because right now lower-level tech is pretty prevalent back home.”

Last month, the CBK invited the public to comment on the potential introduction of digital currency, breaking with its initial opposition to crypto-assets. Kenyans have until May 20 to submit their comments to the banking regulator.

The virtual shilling would work similarly to physical hard currency, freely trading in wallets and in person-to-person payments.

Kenya pioneered mobile money payments with Safaricom’s M-Pesa in 2007, but the central bank has not issued digital currency due to risk concerns.

Risks include commercial banks constrained by the movement of digital currency deposits and the financial exclusion of those without access to technology infrastructure or knowledge, the bank said on Thursday.

A digital currency could limit the effectiveness of monetary policy and increase money laundering risks, the CBK said.

The regulator has, however, highlighted a number of benefits of issuing a digital currency for the economy, including easing and reducing the cost of cross-border payments with other jurisdictions that design similar currencies.

He also sees CBDC as a safer alternative to existing, unregulated digital currencies such as Bitcoin, which he has in the past warned Kenyans against buying.

These cryptocurrencies are not tied to the value of any asset and are therefore highly volatile and speculative, with no recourse in the event of loss through hacking or loss of wallet passwords.

Their value also derives from processes such as mining that aim to maintain scarcity and anonymity, which exposes them to abuse in dirty cash transactions.

“The CBDC could potentially protect the public from the risk of new forms of private currency by providing more secure and reliable payment services than new forms of privately issued money-like instruments, such as stablecoins” , said the CBK.

In Africa, Ghana and Nigeria have already piloted their CBDCs, while Kenya, South Africa, Rwanda and Tanzania conducted research before rolling out their own versions.

In Nigeria, which launched Africa’s first CBDC in October 2021, users must download the eNaira Speed ​​app to use the digital currency.

According to the Pew Research Center, only 32.0% of mobile phone users in Nigeria use smart devices.

The Central Bank of Nigeria has expressed concern that eNaira risks aggravating financial exclusion, partly echoing the views of the CBK.

“More so, maximizing the value and use cases of eNaira is largely dependent on devices with internet capabilities. eNaira thus risks further alienating sections of the population who are uneducated, lack exposure and access to internet services or digital devices,” the Central Bank of Nigeria states in its design document for the eNaira. ‘eNaira.

In Kenya, the CBK says deepening financial inclusion is not CBDC’s main selling point.

“Some jurisdictions have pushed the idea that they would like to issue CBDCs to improve the level of financial inclusion. Most of them would typically have low formal financial inclusion of 50.0% or less,” Dr Njoroge said.

“For us, our level of financial inclusion is estimated at around 85.0%, compared to 27.0% in 2006/07. So we have already made substantial progress in financial inclusion.

The proportion of Kenya’s population with access to formal financial services has been largely influenced by mobile technology, particularly M-Pesa, which captures people without access to the formal banking network.

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