The International Monetary Fund has disclosed that central bank digital currencies could drop the cost of sending and receiving the money to Nigeria and other Sub-Saharan African countries.

The Washington-based lender stated that Sub-Saharan Africa is the most expensive region to send and receive money, with the average cost pegged at a little under eight per cent of the transfer amount. It added that CBDCs could cheapen the process by shortening payment chains and creating competition among service providers.

In its ‘More African Central Banks Are Exploring Digital Currencies,’ report published on its blog, the IMF said, “They can also facilitate cross-border transfers and payments.

“Sub-Saharan Africa is the most expensive region to send and receive money, with an average cost of just under eight per cent of the transfer amount. CBDCs could make sending remittances easier, faster, and cheaper by shortening payment chains and creating more competition among service providers.

“Faster clearance of cross-border payments would help boost trade within the region and with the rest of the world.”

According to the fund body, several sub-Saharan African central banks are exploring/piloting digital currencies following Nigeria’s October’s launch of the eNaira. It said CBDCs are digital versions of cash that are more secure and less volatile than crypto assets because they are backed and regulated by central banks.

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The South African Reserve Bank is experimenting with a wholesale CBDC, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha. The country is also participating in a cross-border pilot with the central banks of Australia, Malaysia and Singapore.

It stated that the Bank of Ghana was testing the e-Cedis while the South African Reserve Bank is experimenting with a wholesale CBDC as part of the second phase of its project Khokha and participating in a cross-border pilot with the central banks of Australia, Malaysia, and Singapore.

It said while countries have different motives for issuing CBDCs, it has some potential important benefits for the region.

The IMF further said, “The first is promoting financial inclusion. CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use.

“In remote areas without internet access, digital transactions can be made at little or no cost using simple feature phones. CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster.”

It added that while several risks and challenges needed to be considered before issuing a CBDC, governments must improve access to digital infrastructures such as a phone or internet connectivity.

The IMF stated that central banks will need to develop the expertise and technical capacity to manage the risks to data privacy and to financial integrity, which will require countries to strengthen their national identification systems so that know-your-customer requirements are more easily enforced.

It said, “There is also a risk that citizens pull too much money out of banks to purchase CBDCs, affecting banks’ ability to lend. This is especially a problem for countries with unstable financial systems.

“Central banks will also need to consider how CBDCs affect the private industry for digital payment services, which has made important strides in promoting financial inclusion through mobile money.”

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