Following Nigeria’s October introduction of e-Naira, several Sub-Saharan African central banks are investigating or testing a digital currency. Nigeria was the second country, following the Bahamas, to implement a CBDC.
I see reasons to agree with you that Africa has other fundamental issues that need to be addressed in addition to CBDC, but I also believe that we must start somewhere in order to address these issues, and if an African country chooses to pursue CBDC, I believe this is also a step in the right direction given the benefits that go along with it.
Countries have different reasons for issuing CBDCs, but there are some potentially significant benefits for the region. CBDCs can be used to distribute targeted welfare payments, particularly during a pandemic or natural disaster.
They can also make cross-border transfers and payments easier. Sub-Saharan Africa has the highest cost of sending and receiving money, with an average cost of just under 8% of the transfer amount. CBDCs may make remittances easier, faster, and less expensive by shortening payment chains and increasing competition among service providers. Faster clearance of cross-border payments would help boost regional and international trade, so I think it’s a welcome development while tackling other problems affecting the region.
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Central Bank Digital Currencies (CBDCs) are digital versions of Fiat currencies issued and backed by Central banks.
Some of the main challenges that CBDC projects face include:
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Technological Challenges:
Creating and executing a CBDC requires a big and secure technological infrastructure. This can be difficult and expensive, especially if the CBDC is to be made available to the general public.
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Legal and regulatory Challenges:
There are many lagal and regulatory issues to consider when starting a CBDC, including issues related to consumer protection, financial stability, and monetary policy.
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Security Challenges:
CBDCs must be protected from hackers, money Laundering, and other Financial crimes. Thais requires strong cyber security solutions to be put in place and regularly tested.
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Privacy Challenges:
CBDCs could potentially be used to track and monitor the Financial activities of individuals, raising concerns about privacy and Civil liberties.
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Monitary Policy Challenges:
The introduction of a CBDC could potentially affect the effectiveness of monitary Policy tools and the transmission of monitary Policy to the economy.
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This is really really educative. Taking Nigeria Economy for instance, they created E-Naira and banned Crypto trading for the growth of the e-Naira. Till now we are yet to see the progress and importance of the CBDC in our Fiat currency.
If my voice could be heard all over Nigeria and Africa at large, I will advise them to invest in other things that could develop Africa for now before venturing into CBDC for we have numerous underlying issues that will prevent the growth usage of CBDC in most African countries.
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