Following the launch of the e-Naira in Nigeria in October, several central banks in sub-Saharan Africa are investigating or testing out a digital currency. After the Bahamas, Nigeria was the second nation to introduce a CBDC.
As part of the second stage of Project Khokha, the South African Reserve Bank is experimenting with a wholesale CBDC that can only be used by financial institutions for interbank payments.
Because they are issued and governed by central banks, CBDCs are digital forms of currency that are safer and less volatile than crypto assets. In contrast to other nations, that are still doing research, South Africa and Ghana are now conducting pilot projects.
Additionally, the nation is taking part in a cross-border experiment with the central banks of Singapore, Malaysia, and Australia.
The e-Cedi, a general-purpose or retail CBDC being tested by the Bank of Ghana, may be used by anybody who has a digital wallet app or a contactless smart card that can be used offline.
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Advantage of CBDC
Although various nations have different reasons for issuing CBDCs, there are some possible advantages for the area.
Promoting financial inclusion is the first. CBDCs, particularly if created for offline usage, might provide financial services to those who previously lacked bank accounts.
Simple feature phones can be used to conduct digital transactions for little to no cost in rural locations without access to the internet.
Particularly during sudden emergencies like a pandemic or natural disaster, CBDCs can be utilized to give targeted welfare payments.
They can also make international payments and transfers easier.
With an average cost of just under 8% of the transfer amount, Sub-Saharan Africa is the most costly region to send and receive money.
By reducing the length of the payment chain and fostering more competition among service providers, CBDCs might make transferring remittances simpler, quicker, and less expensive.
Trade both inside the area and with the rest of the globe would increase with quicker cross-border payment processing.
But before issuing a CBDC, there are hazards and difficulties that must be taken into account. Governments will need to make digital infrastructure, such as phone, and internet connectivity, more accessible.
The impact of CBDCs on the private sector of digital payment services, which has made significant progress in promoting financial inclusion through mobile money, will also need to be taken into account by central banks.
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