According to reports, six East African states will be exploring the possibility of using central bank digital currencies (CBDC) as an alternative to their common payment system. The six countries, all of which are members of the East Africa Community (EAC) trade bloc, hope that this alternative will pave the way towards the realization of a “single currency for the region by 2024”.
The dying EAPS
The revelations of the EAC’s digital currency plan follow the “call for advice for a feasibility study” by the block secretariat on the planned upgrade of the East African payment system (EAPS). Since its inception in 2014, the EAPS has not worked properly due to Member States’ distrust of each other’s currency.
As a result, according to a report, the EAC says that the selected “advisor will conduct an exploration of the scope of such developments”. The advisor is similarly expected to conduct exploratory scoping for “new technologies and their adoption, including but not limited to technologies that involve the use of digital central banks (CBDCs)”.
Mistrust between Member States
In the meantime, the same report quotes the EAC Secretariat, which lists some of the key challenges that have been observed at the EAPS. The secretariat said:
The original financing model, in which the participants were procured from the market to finance other EAC currencies, is proving to be expensive due to the unavailability of the partner countries’ currencies in the local market.
The Secretariat added that “the lack of centralized user support means that problems using the system take a long time to resolve”. This in turn has a negative effect on the operation of the system.
“The fact that the system does not work on a single platform also means that centralized liquidity and collateral management is not possible,” concludes the EAC Secretariat.
According to the report, Kenya is currently dominating 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 participate in the CBDC’s exploratory process are Uganda, Tanzania, Rwanda, Burundi and South Sudan.
What do you think of the EAC members’ plan to form a CBDC? You can share your views in the comments section below.
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