Central Bank Digital Currencies Will Help Foster Financial Inclusion

Photo Credit: https://www.facebook.com/CentralBankofEswatini

Opinion- By Avite Mbabazi

On 18 October 2022, the Central Bank of Eswatini (CBE) announced that it had partnered with the international technology group Giesecke+Devrient (G+D) to research and explore the development of a Central Bank Digital Currency (CBDC).

A Central Bank Digital Currency (CBDC) is not a payment system, instead, it is a purely digital form of a country’s legal tender issued by the central bank that people can use just like cash. CBDCs are typically held in a digital wallet and can be used as a payment instrument by its owners. CBDCs are exchangeable to a county’s physical currency at the rate of 1:1.

According to the Bank of International Settlements (BIS) survey in 2021, 86% of central banks across the world are actively researching the potential for CBDCs. Here on the African continent, the Nigerian central bank, (Central Bank of Nigeria) (CBN) became the first central bank on the continent to launch a CBCD, the e-Naira, in 2021.

As the Central Bank of Eswatini stated in their statement on central bank-issued digital currencies, a CBDC has the potential to address a number of challenges in Eswatini, including financial inclusion.

Indeed, the provision of mobile payment channels in the country has facilitated payments between individuals and businesses without the need for bank accounts. A Digital Lilangeni would go a step further by, for example, creating a channel for the government of Eswatini to make transfer payments such as pensions directly into the wallets of the citizens reducing transaction time and removing the costs associated with moving cash between government bodies and commercial banks.

Although it is certainly not all about costs, over time, a Digital Lilangeni would significantly play a part in cutting the costs of moving and distributing physical cash which is passed on to customers by commercial banks.

 With a Digital Lilangeni that goes directly into the wallets of Emaswati, ATMs would increasingly become less integral across Eswatini. Costs of installation, maintenance, and security would be eliminated while the resulting decrease in Cash-in-Transit (CIT) would, furthermore, reduce the risk the general public faces whenever cash is moved to crowded areas such as shopping malls.

This potentially direct relationship between the Central Bank of Eswatini and Emaswati, however, does not spell the end of the role of commercial banks in our economy. As it stands, the Central Bank of Eswatini (CBE) does not have the capacities of commercial banks operating locally to deal with the large volume of customers and operations that these banks carry out on a daily basis.

Therefore, in case a digital Lilangeni is introduced in the country, commercial banks would continue to play a role in the finances of Emaswati albeit in a different way.  

Outlining the objectives of the research project on CBDCs, the CBE stated that: “The project will enable the Bank to make an informed decision about the implementation of a CBDC in Eswatini. The Bank will understand whether, and how, a CBDC could provide additional benefits and ensure continued access to central bank money, contributing to the development of the country’s diverse and resilient payment system.”

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