Cryptocurrencies represent a threat to financial stability, but central bank digital currencies might address issues like bringing the poor into the financial system or lowering transaction costs, according to Kenyan and Nigerian central bankers.
On a virtual event chaired by the International Monetary Fund’s Africa director Abebe Aemro Selassie, Kingsley Obiora, deputy governor of Nigeria’s central bank, claimed the country’s eNaira digital currency, which was launched last October, is a boon for inclusion.
Industry experts and cryptocurrency users were skeptical of its introduction, which was the first by an African central bank, and Obiora did not reveal how extensively it is utilized.
Kenya, according to central bank governor Patrick Njoroge, might follow suit with its own digital currency to reduce payment and cross-border transaction costs.
Both central bankers slammed cryptocurrencies, with Obiora claiming that they aren’t reliable enough to be used as a payment mechanism.
“The volatility it causes in the system may become a source of instability,” he warned.
Despite a restriction on banks handling crypto assets in Nigeria since February 2021, the market has thrived. Despite central bank warnings about the hazards, they have become popular in Kenya.
“There was a lot of excitement,” Njoroge said of cryptocurrencies, pointing out that bitcoin can only handle a limited amount of transactions per second. Crypto assets, he added, might be regulated as a “wealth product.”
The central bank, according to Njoroge, is evaluating replies to a public consultation on a central bank digital currency.
Given Kenya’s extensive use of mobile money, he claimed financial inclusion was a less pressing necessity than in Nigeria.
Cross-border payments have been mentioned as a potential usage by South Africa, which is participating in a digital currency trial alongside Malaysia, Singapore, and Australia.
Fuel price inflation precipitated by Russia’s war in Ukraine, according to Njoroge and Obiora, is generating issues, with the Nigerian banker remarking that regular people are suffering the most.
“We’re under a lot of strain as a result of this, let’s call it collateral damage,” Njoroge added. “We are hoping that the G7 would resolve the issue with the Russians and whomever else is exporting the oil, and then lower the price.”
To combat inflation, Kenya’s central bank boosted interest rates by 50 basis points last month, the first increase in over seven years.
In May, Nigeria hiked its benchmark rate for the first time in more than two years, by 150 basis points.
