Central Bank of Kenya Releases Discussion Paper on CBDCs

• CBK also highlighted the growing popularity of digital payment methods.

• The Bank discussed potential benefits and risks associated with CBDCs.

CBK noted that AML, technology risks, and infrastructure costs are some of the major risks associated with CBDCs. However, the bank also outlined a few prominent features of the digital currencies including the expansion of cross-border payments, financial stability, innovation, and financial inclusion.

The Kenyan central bank highlighted the rising popularity of digital tools in the global payments industry. “Following the outbreak of the coronavirus (COVID-19) pandemic, digital platforms have emerged as important financial inclusion tools across the world. To reap the full benefits and manage risks, policymakers are looking to step up. Central banks are exploring the possibility of rolling out CBDC solutions to meet their future payments needs in a digital economy,” CBK mentioned.

According to a recent survey conducted by the Bank for International Settlements, nearly 86% of central banks around the world are exploring the possibilities of CBDCs.

Risks

The Central Bank of Kenya said that it is monitoring the ongoing developments in the global CBDC ecosystem. While the bank outlined the potential advantages of CBDCs, it added that the disadvantages of digital assets must be considered before further developments.

“There are significant potential risks with CBDC issuance. These include financial exclusion, technology risks, competing with bank deposits and undermining bank intermediation, hampering monetary policy transmission, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), and data privacy balance and infrastructure costs,” the Central Bank of Kenya added.