Six East African states are reportedly set to explore the possibility of using central bank digital currencies (CBDC) as an alternative to their shared payment system. The six countries, which are all members of the East Africa Community (EAC) trading bloc, are hoping this alternative will create a pathway that leads to the attainment of â€œa single currency for the region by 2024.â€
The Moribund EAPS
The revelations of the EACâ€™s digital currency plan follow the bloc secretariatâ€™s â€œconsultancy call for a feasibility studyâ€ on the planned upgrade of the East African Payment System (EAPS). Since its launch in 2014, the EAPS has failed to function properly due to member statesâ€™ distrust of each otherâ€™s currency.
Consequently, according to a report, the EAC says the selected â€œconsultant will conduct an exploratory scoping of such developments.â€ The consultant is similarly expected to conduct an exploratory scoping for â€œemerging technologies and their adoption, including but not limited to technologies involving the use of Central Bank Digital Currencies (CBDCs).â€
Distrust Between Member States
Meanwhile, the same report quotes the EAC secretariat detailing some of the key challenges that have been observed with the EAPS. The secretariat said:
The secretariat adds that the â€œlack of a centralised user support means that resolution of any problems with the usage of the system takes a long time.â€ This in turn impacts negatively on the operations of the system.
â€œThe fact the system does not operate on a single platform also means that centralised liquidity and collateral management is not possible,â€ concludes the EAC secretariat.
According to the report, Kenya currently dominates transactions in the EAPS, which allows citizens of member countries to make and receive payments in regional currencies. The other five member states that will be party to the CBDC exploratory process are Uganda, Tanzania, Rwanda, Burundi, and South Sudan.
What are your thoughts on the EAC membersâ€™ plan to create a CBDC? You can share your views in the comments section below.
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