How we transact is changing rapidly worldwide, which has significant consequences for Central Banks around the world. Globally, central banks are starting to see the advantages of issuing Central Bank Digital Currencies (CBDCs), with 90% of central banks now exploring the idea of issuing a digital currency. A growing number of these central banks are on the African continent. In fact, the Central Bank of Nigeria (CBN) and the South African Reserve Bank (SARB) have been at the forefront of CBDC development on the continent.
In 2021, Nigeria's CBN successfully launched the eNaira, becoming the first African country to introduce a digital currency. And South Africa's SARB recently completed a prototype system called Project Dunbar in collaboration with the Bank for International Settlements (BIS) Innovation Hub. Project Dunbar follows earlier developments in Project Khokha.
In light of all this activity around CBDCs on the continent, the Financial Innovation Hub hosted its first inaugural CBDCs in Africa Symposium at the UCT GSB Academic Conference Centre. We brought together representatives from various African Central Banks, leading academics, and representatives from industry to participate in two panel discussions that explored African Central Banks and their Digital Currencies, CBDCs in general, and ongoing payments innovation. Both panels were moderated by Carlos Mureithi, a former Quartz journalist who recently joined OCCRP (the Organized Crime and Corruption Reporting Project).
Panel one: Central Banks and their (Digital) Currencies
In our first panel, we had Rakiya Mohammed from CBN, who was instrumental in the recently launched e-Naira, Gerhard Van Deventer from SARB, who participated in Project Dunbar, FinHub Director and UCT Associate Professor Co-Pierre Georg and Peter Munnings from Adhara. Adhara is a leading financial software company that has developed a CBDC suite aimed at Central Banks.
Professor Georg and Peter Munnings started the discussion on the evolution of CBDC development ranging from wholesale CBDCs to retail CBDCs and now mCBDCs and whether we really need CBDCs in both wholesale and retail forms. Gerhard Van Deventer from SARB also gave his unique perspective on mCBDCs, given his involvement in Project Dunbar. For context: Project Dunbar is an mCBDC project where the 'm' stands for 'Multiple'. Specifically, Gerhard discussed the reasons for this experiment – one key question he said SARB faced in Project Dunbar was how governance would work for mCBDCs regarding anti-money laundering when onboarding different banks.
“The decision that central banks make around infrastructure matters. Before acting, we must think about implications and be deliberate and that policymaking and designing must be agile and adaptive.” -- Gerhard Van Deventer
Lastly, Rakiya Mohammed gave her insights on crypto regulation in Nigeria and its impacts on their newly launched CBDC. As the first African country to launch a CBDC, Nigeria experienced some challenges. One key finding was that the eNaira has the potential to improve financial inclusion and grow the economy. She explained how Nigeria strengthened its crypto regulation before launching its CBDC given that CBDCs have roots in cryptocurrency which remains a legal grey area for most jurisdictions.
Panel two: CBDCs and Ongoing Payments Innovation
The second panel consisted of industry experts in tech and payments. Namely: Pietro Grassano from Algorand, Jan Pilbauer from BankservAfrica, Andries Brink from the 42Markets Group, Pierre Durandt from Sumbion SF and James Wallis from Ripple. This panel discussed modern-day payment systems, a world with a wholesale CBDC and whether this would lead to significant changes in the interbank market.
This panel then turned their attention to Project Khokha and other projects that found blockchain can facilitate interbank payments on par with current payment systems. Ultimately, the panel was split on whether our current payment systems are broken and needed a complete overhaul. However, speakers did agree that a new payment system would not be a magic bullet that could suddenly include financially excluded. One of the main reasons is that closed-looped payment systems are difficult to access and cost-ineffective, which is why most South Africans still choose to transact in cash. The panel then turned its attention to retail CBDCs, particularly in Africa, and debated whether retail CBDCs should become legal tender.
"It’s important when developing a payment instrument that it has characteristics of (1) ease of use (2) accessibility (3) ubiquity and (4) utility. As this is what will make adoption easier for consumers thus increasing prospects of financial inclusion and not necessarily the status of whether it is a legal tender or not.” -- Pierre Durandt
A recurring theme from both panels was how do CBDCs solve financial inclusion (if at all) and what is the purpose of CBDCs. These questions are particularly relevant for a continent where 57% of the population remain unbanked (limiting their access to financial services), and a digital identity is less prominent. James Wallis agrees that while digital identity is essential, CBDCs bring the potential for financial technology companies to enter the space and provide low-cost products for the financially excluded.
As more African central banks explore the feasibility and advantages of CBDCs through trials and research, there is a clear need for Pan-African collaboration. We hope to continue this conversation as we plan future engagements at the Financial Innovation Hub.
Summary of speakers
Panel 1: Central Banks and their (Digital) Currencies
- Moderator: Carlos Mureithi - OCCRP
- Speakers:
- Rakiya Mohammed : Central Bank of Nigeria
- Gerhard Van Deventer - South African Reserve Bank
- Co-Pierre Georg - University of Cape Town
- Peter Munnings - Adhara
Panel 2 - CBDCs and Ongoing Payments Innovation
- Moderator: Carlos Mureithi - OCCRP
- Speakers:
- Pietro Grassano - Algorand
- Jan Pilbauer - BankservAfrica
- Andries Brink - 42Markets Group
- Pierre Durandt - Sumbion SF
- James Wallis - Ripple