By Purity Ngigi- Sundays

In the wake of technology and innovation, there has been the reception of digital payment methods and virtual currencies such as cryptocurrencies, stable coins, Central Bank Digital Currencies (CBDC), and electronic money have been in the global market. Many countries are slowly including virtual currency as part of their legal tender. Countries such as Singapore, Bahamas, Canada, England, Sweden, China etc., have either individually or by collaborating with other countries incorporated or are currently testing the introduction of virtual currencies as alternatives to physical cash or in cross border payments.

Currently, there is no recognition of virtual currency under Kenyan law. The Central Bank of Kenya Act recognizes notes and coins as legal tender. On 10 February 2022, the Central Bank of Kenya (CBK) published a Discussion Paper on Central Bank Digital Currency (CBDC) and its adaptability in Kenya. The CBDC is a digital currency issued solely by a central bank.

The Discussion Paper evaluates the risks and opportunities of introducing the CBDC to the Kenyan Market for retail and cross border payments. The risks include technological risks such as cyber security breaches, increased money laundering opportunities if the CBDC is anonymised, or data privacy issues if it is not anonymized. The lack of technological know-how would be a challenge for some people in operating the underlying technology in the CBDC. The introduction of the CBDC may also affect the banking industry and could potentially affect the costs and creation of credit by banks.   

The Discussion Paper also outlines the growth in the mode of payments in Kenya. Kenya is known worldwide for its championing role in introducing mobile money. Access to mobile money has continued to grow in rural and urban communities. Given the popularity of mobile money in Kenya, it is unclear how the CBDC will be adopted as a means of payment. 

That said, CBDC has excellent potential in changing the costs and timelines in processing cross border transactions and providing increased safety and protection in the use of digital payment systems. With the increased use of digital payment systems, especially in the wake of COVID -19, many countries will use virtual currencies as part of their legal tender. If Kenya is to adapt to the changing times, the implementation of the CBDC is a step in the right direction.

The Public has been invited to share its comments on the CBK’s Discussion Paper for consideration by the CBK by 20 May 2022.

You can access a copy of the Discussion Paper here.