Six East African states are reportedly set to explore the possibility of using central bank digital currencies (CBDCs) as an alternative to their shared payment systems. The six countries, which are all members of the East Africa Community (EAC) trading bloc, are hoping this option will pave a path that will lead to the realization of a “single currency for the region by 2024”.
The Moribund EAPS
The revelations from the EAC’s digital currency plan follow a “consultation call for a feasibility study” by the Block Secretariat on the planned upgrade to the East African Payment System (EAPS). Since its launch in 2014, the EAPS has failed to function properly due to member states’ mistrust of each other’s currency.
Consequently, according to a report good, the EAC says that the selected “consultant will conduct an exploratory investigation into such developments.” The advisory is also expected to conduct an exploratory scoping for “emerging technologies and their adoption, including but not limited to technologies involving the use of central bank digital currencies (CBDCs).”
mistrust among member states
Meanwhile, the same report details some of the major challenges seen with EAPS, citing the EAC Secretariat. The Secretariat said:
The original funding model where participants sourced funding for other EAC currencies from the market is proving costly due to non-availability of participating states’ currencies in the local market.
The secretariat said that “the lack of centralized user support means that any problems with the use of the system take a long time to resolve.” This in turn has a negative effect on the operation of the system.
“The fact that the system does not operate on a single platform also means that centralized liquidity and collateral management is not possible,” concludes the EAC Secretariat.
According to the report, Kenya currently dominates transactions in EAPS, which allows citizens of member countries to make and receive payments in regional currencies. Uganda, Tanzania, Rwanda, Burundi and South Sudan are the other five member states participating in the CBDC exploration process.
What are your thoughts on the EAC members’ plan to create a CBDC? You can share your thoughts in the comment section below.
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