ACR #8: Why Do African Central Banks Love CBDCs?
Welcome to Africa Crypto Report, our weekly look at crypto, blockchain and more on the African continent. Today, we are talking about African CBDCs.
The Bank of Tanzania (BoT) is waiting for the conclusion of its research into CBDCs before making a final decision.
According to a notice from Tanzania’s central bank, it is still considering the introduction of a central bank digital currency (CBDC) but will be taking a “phased, cautious and risk-based approach” after identifying several challenges that could impact its implementation.
Notably, in November 2021, the East African country’s apex bank announced a possible CBDC rollout. Following that, the government formed a multidisciplinary technical team to explore the risks and benefits of CBDCs.
Currently, the bank has not given a clear-cut timeline for when it will decide on the CBDC. Rather, it says it will “continue to monitor, research and collaborate with stakeholders, including other central banks, in the efforts to arrive at a suitable and appropriate use and technology for issuance of Tanzanian shillings in digital form.”
Why are African central banks considering CBDCs?
Could it be to increase financial inclusion and bring basic financial services to people who previously didn’t have bank accounts?
To facilitate cross-border transfers and payments? As this is the most expensive region to send and receive money.
Or is it the political desire to reduce reliance on US dollars? 😏
And maybe they are following the example of the Bahamas, which created the first CBDC, to make it easy to distribute relief materials in case of natural disasters or a pandemic.
Here’s a graphical illustration of the African countries considering CBDCs:
Nigeria is the only country on the continent to have fully launched a CBDC, and from its point of view, it’s meant to increase financial inclusion and improve its cashless policy.
Of course, the adoption has been poor and the reason is not farfetched. The eNaira is like wearing a condom while having sex with your pregnant wife to prevent a twin. The eNaira in its current implementation provides no extra advantage for most people who already perform digital transactions, it doesn’t solve the critical problem of banking the unbanked.
The key to a successful CBDC, like every product, will be defining and understanding the problem and building a solution that solves it well. It’s not enough to adopt a CBDC like everyone else. Also, not all countries even need a CBDC.
It’s not a surprise some countries like Denmark, Japan, Ecuador and Finland have cancelled CBDC adoption plans, while some others have moved away from digital currencies due to structural and technological challenges in the implementation phase.
There’s also the small matter that CBDCs are just going to be instruments of bigger centralization, government control and a threat to individual privacy.
What else?
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What’s going on abroad?
Crypto lender Genesis files for Chapter 11 bankruptcy
Crypto lender Genesis Global has become the latest firm to throw in the towel following the collapse of FTX, filing for Chapter 11 bankruptcy protection in New York.
South Korea Launches Metaverse Replica of Seoul
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California cannabis producer adopts blockchain to track its weed
A California-based cannabis nursery has turned to blockchain and smart contracts to verify the authenticity of its medicinal plants.
What’s the meme?
Others…
What we are reading
In Africa, FTX Posed as Haven From Tumbling Currencies, Inflation (Wall Street Journal)
Peter Thiel’s fund wound down 8-year bitcoin bet before market crash (FT)
Why Crypto Developer Activity Continues to Grow Despite the Bear Market (Unchained Podcast)