- National Bank of Ethiopia unveils a broad economic reform plan, including CBDC
- What are CBDCs?
- How are CBDCs adopted in Africa?
The National Bank of Ethiopia (NBE) has put in place legal frameworks that will allow for the establishment of Central Bank Digital Currency (CBDC). This is part of a broad economic reform plan, which Ethiopia's Council of Ministers has approved.
The plan will be subject to ratification by the country’s parliament, the House of Peoples' Representatives.
These plans are a big step toward strengthening the National Bank of Ethiopia's credibility, accountability, transparency, and governance while also providing a solid foundation for future growth, a local newspaper in the country reports. The report further explained that the rapid advancement of technology, global norms, best practices, and experiences of peer central banks, along with the present and future levels of development and policy direction, have all been considered by the NBE in the preparation of these proclamations.
The NBE Proclamation calls for a number of policy changes, including raising the NBE's capital and establishing a foundation for consumer protection in addition to establishing a legal framework for a CBDC "as necessary." The Banking Business Proclamation that goes along with it talks about opening up banking to foreign investment, taking action against "problem" banks, and setting up a regulatory sandbox to support creative financial solutions.
Another local newspaper had reported in April the government’s interest in a CBDC, stating that a study would likely be launched in June.
It further stated that by December, the NBE hopes to become a part of "the Cross Border Payment System," but gave no further details about the system.
What are CBDCs?
A central bank digital currency (CBDC) is the digital form of a currency issued by a country's central bank. It is comparable to cryptocurrencies, but it is equivalent to the country’s fiat currency and has a fixed value set by the central bank.
CBDCs are being developed in many nations, and some have already put them into practice.
There is not just one kind of CBDC; numerous strategies are being tested in different nations. An account-based model like DCash, which is being used in the Eastern Caribbean, is one kind of CBDC. Customers maintain direct deposit accounts with the central bank through DCash.
China's e-CNY, a CBDC pilot program, is at the other extreme of the spectrum. It depends on private-sector banks to issue and manage digital currency accounts for their clients.
CBDC in Africa
Cryptocurrency adoption in Africa is gaining traction but government policies remain a bottleneck for most people on the continent. In Ethiopia, for instance, cryptocurrency remains illegal. In Nigeria, there is no specific legal framework for crypto usage but banks have repeatedly banned bank accounts of persons who trade in cryptocurrencies.
Earlier in 2022, Nigeria launched its own CBDC, the eNaira, which was the world’s second live CBDC at the time. Research on CBDCs is underway in at least 18 African nations, according to CBDC Tracker.
Ghana’s CBDC, the e-Cedi, is yet to be fully deployed in the country, despite the pilot phase being completed. Ghana announced the development of the e-Cedi in 2021.
