CBK’s Digital Currency Plan Could Be Delayed Because of Low Smartphone Outreach

The Central Bank of Kenya (CBK) has warned that lack of access to smartphones by more than half of mobile users in the country will hamper the rollout of its proposed digital currency that requires access to the Internet.

The smartphone hitch, according to CBK Governor Patrick Njoroge, might force the bank to delay the rollout of the central bank digital currency (CBDC). Official data shows that 33 million devices are feature phones making it difficult for half of subscribers to transact using CBDC. This represents 33% of all cellphone devices in the country.

In partnership with Google, Safaricom has made a sales offer of one million affordable digital sets, with customers paying as little as Sh20 a day over nine months, aiming to switch about four million 2G and 3G phones to 4G.

Dr Njoroge says if Kenya was to start using CBDC on 4G-enabled phones, then it would hurt the country’s financial inclusion and effectively lock out half of the population from transacting in the CBDC.

“The CBDC will have a minimum viable technology requirement, which may be a sort of fourth-generation (4G) environment. There is an argument to be made that such a development could lead to greater financial exclusion such that some people may fall out of the financial system just because we have adopted a CBDC… This is something we need to be careful about,” said Dr Njoroge as quoted by Business Daily.

“We may decide therefore that we should wait a little more until everyone catches up because at this moment the lower-level technologies are quite prevalent with us.”

The Central Bank had invited public views on the potential introduction of the digital currency as it attempted to depart from its original opposition to crypto assets. Kenyans have until May 20 to submit their comments to the banking regulator.

The virtual shilling would work in the same way as physical hard currency, exchanging freely within wallets and in person-to-person payments.

Kenya pioneered mobile money payments with Safaricom’s M-Pesa in 2007, but the central bank has not issued a digital currency due to concerns about the risks.

The risks include commercial banks being constrained by movement of deposits into the digital currency and financial exclusion of those without access to technological infrastructure or knowledge, the bank said on Thursday.

The regulator, however, has highlighted a number of advantages in issuing a digital currency for the economy, including easing and lowering the cost of cross-border payments with other jurisdictions that design similar currencies.

It also views CBDC as a safer alternative to the existing, unregulated digital currencies such as Bitcoin, which it has in the past warned Kenyans against buying.