Central bank digital currencies popularly known as CBDCs, are starting to gain prevalence all over the world. A Central Bank Digital Currency (CBDC) is a digital variation of money available to the general public regulated by the Central Bank i.e a virtual version of a currency. You can send, transfer and even carry out cross-border payments using a CBDC.
There are several African countries currently looking to implement CBDCs soon. These countries are in the research and testing stage. Some countries, on the other hand, have already launched their versions and are looking to increase adoption. Nigeria for example officially launched its E-Naira last year in October. South Africa currently has two CBDC projects: Project Khoka 2 and Project Dunbar.
It was recently announced in March this year that the Bank of Uganda is also exploring the idea of implementing a digital currency but is still studying and revising the financial laws.
The Centre for Technology Disputes Resolution-Uganda (CTDR-U), a nonprofit organization, has just written a proposed CBDC paper to the Bank of Uganda as a way of motivating Uganda to explore the option of digital currencies (E-sente). We talked to Ivy Mapfaira, a Legal and Policy Associate at the organization and she shared more about what inspired this and how Uganda can benefit from this.
1. Please give us a brief introduction to the Centre for Technology Disputes Resolution-Uganda
Centre for Technology Disputes Resolution-Uganda (CTDR-U) is a not-for-profit organization whose objective is to be the leading choice for legal technologists that connects and empowers ecosystem players in a manner that is inclusive, sustainable, and fair to all.
2. What has motivated the CBDC proposal for BOU?
This was motivated by the potential benefits that a Ugandan CBDC could offer which include: an increase in cross-border payments. CBDCs have the potential to ensure cheaper/lower transaction and storage costs, and more transparent and resilient payment solutions. They further have the potential to ensure security as it would be much easier for payments and transfers to be traced to their original source drastically reducing fraud and money laundering risks and also bringing about financial inclusion.
3. Is Uganda ready for CBDCs?
Many Ugandans have adopted e-payments and many more are expected to do the same thanks to the invention of mobile money and other third-party services. According to statistics, 30 million mobile money accounts have been created as of February 2021, with the value of mobile money transactions in Uganda amounting to 5.2 billion US dollars in the first quarter of 2019. With the advent of Covid-19 and the imposition of limits on physical touch, e-payments have gained an even more widespread acceptance. With all this happening it is quite evident that Uganda is already moving towards the use of digital money.
4. Will BOU be receptive to the proposal?
Well, BOU is already taking positive steps towards the issuance of a CBDC. BOU recently announced that it had commenced its research on the viability of a CBDC in Uganda both retail and wholesale, and is looking at other Central Banks including Jamaica, Ghana, Nigeria, etc. as case studies.
5. What measures have been set up in Uganda to accommodate CBDCs?
As of now, there are no measures that have been put in place, but in order to be able to accommodate a CBDC a revision of the financial laws is necessary, and the CBDC design choice that BOU will adopt is crucial. To any design choice, two elements are constant, the first one being the CBDC itself (i.e., access to a new form of central bank money) and the second being the CBDC infrastructure which allows CBDC to be transferred and utilized for payments. Three major factors within the CBDC infrastructure alongside Uganda’s current situation would need to be addressed and these include:
a) Provision, which entails the necessary stakeholders, their responsibilities, and functions.
b) Functional Design, which will concern the type of payments that will be made and how users will interact with CBDC.
c) Economic Design, which will have an impact on the rate at which CBDC would be adopted by the general population as it concerns aspects such as accessibility.
6. Are there enough people using the internet in Uganda that have the literacy to use the CBDC or are we just following a global trend with no practicality here?
According to a survey conducted by Uganda Communications Commission (UCC) in the 2020 report, at least 50% of Uganda’s population is connected to the internet, meaning nearly one in every two Ugandans has internet access and this number is expected to grow. It is also important to note that access to the CBDC does not only have to be through the internet. To ensure accessibility, BOU would need to put into consideration the population that does not have access to bank accounts or the internet and adopts either Unstructured Supplementary Service Data (USSD) or Qr Codes for those with a smartphone but no bank account. BOU would have to consider picking a leaf from the Eastern Caribbean Currency Union and create a CBDC that allows users without bank accounts to download an app and make payments via a Qr Code to avoid the predicament that Nigeria has found itself in as only those with bank accounts have been able to access its CBDC.
7. A lot of countries adopt CBDCs to cover the unbanked. In Uganda, the unbanked are mostly there due to poverty/illiteracy. Does the motive of appealing to the unbanked really apply?
Yes, it does apply, the aim is to ensure that the CBDC is used as a tool for financial inclusion with the potential of offering lower costs of transferring money among many other benefits. However, covering the unbanked is not the only reason why Central Banks are adopting CBDCs, the adoption has been motivated by a number of reasons which include, more resilience, more safety, greater availability, and lower costs.
For more information, download the CBDC paper here.