HomeOpinionCeteris Paribus: Will CBDCs work for Zim?

Ceteris Paribus: Will CBDCs work for Zim?

By Eben Mabunda

THIS article is a follow up to a previous submission “The concept of CBDCs” covered in this column last week.

The idea of a digital currency would not be a new one to Zimbabwean citizens who for over three years have made do with their own digital currency: the Real Time Gross Settlement (RTGS).

In the face of cash shortages in the country, with the central bank making frantic efforts to control the aggregate money in circulation, the RTGS has provided great relief to the economy, riding on the local banking system and mobile money platforms- steamrollers of financial inclusion in Zimbabwe.

In the latest Monetary Policy Statement released by the Reserve Bank of Zimbabwe (RBZ); the bank’s chief whip Dr John Mangudya indicated the bank’s investigation into the feasibility of a central bank digital currency (CBDC) for Zimbabwe —  a mission which presents several daunting questions.

The mission is unenviable as it must produce sober answers, the most important being whether the concept would work in the Zimbabwean context or not?

As a footnote, CBDCs were introduced to counter and regulate the cryptocurrency revolution, one which is fast gaining traction across the world with one third of Americans owning a crypto asset at the close of 2021 and Nigeria proving a hive of crypto activity as the nation has one of the highest (Peer-to-Peer) P2P volumes of crypto transactions globally .

Notwithstanding its ever expanding territory with the development of the Metaverse and NFTs; subjects we will cover in more detail in successive conversations on this column.

Nigeria was first to launch a CBDC in Africa a few months ago: Zambia, Kenya and others are on their way.

The universal puzzle that needs to be solved is the interoperability of the various digital currencies, one that the Bank for International Settlements (BIS) and central banks from seven jurisdictions are trying to solve.

The development of a digital currency that is compatible with others would be vital in improving cross-border payments. Discussions on how CBDCs could be used for cross-border payments are ongoing according to the IMF —  an undertaking that is not without its own hurdles.

If you download the Nigerian CBDC app for the “e-Naira” you will realise that you will be required to link your CBDC account with an existing bank account in order for you to transact.

If Zimbabwe were to launch a CBDC and call it “e-Zwl,” would this CBDC provide better features than the Zimbabwean dollar or would it be as cheap as the local unit?

Confidence in Zimbabwe’s apex bank is in the doldrums considering the instability of the Zimbabwean dollar (ZWL), the raging inflation and the forex shortages prevailing in the country.

Launching another product whose vendor is the central bank may not tick all the right boxes for the Zimbabwean economy.

It is a mission perhaps to be pursued in the medium term, when the currency conundrum has been quailed, if at all.

The progress made by mobile money vendors in Zimbabwe since the concept was imported from Kenya’s Safaricom by Econet in 2013 should not be underestimated.

The aggressive setting up of stalls across the country and the education of the populace on the financial innovation took quite an investment over a number of years.

The dividend is the existence of over 15 million mobile money accounts. The question is how will the Zimbabwe CBDC coexist with mobile money?

Vital to the matrix will be the CBDC’s route to the market; whether it will ride on other platforms or not? Other questions are: How much will RBZ invest in the venture?

Will this be run by the central bank or a private player will be contracted for the systems? Will CBDCs work for Zimbabwe?

  • Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net.

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