East Africa Community member states will explore the potential of a central bank digital currency (CBDC) for their shared payment system to end reluctance by member countries to trade in each other’s currency.
In a call for a consultant on cross-border payments in a recent media advertisement, the bloc’s secretariat said advances in technology and innovation have created a potential for new forms of cross-border payments even as it moved to upgrade the struggling East African Payment System (EAPS), which was launched in May 2014.
“Review recent advances in technology and innovations that have created the potential for new payment infrastructures and arrangements that could be applied to cross-border payments,” the secretariat said in a May 21, consultancy call for a feasibility study on the planned upgrade of the EAPS.
“The consultant will conduct an exploratory scoping of such developments, as well as emerging technologies and their adoption, including but not limited to technologies involving the use of Central Bank Digital Currencies (CBDCs),” it added.
The adoption of a CBDC could provide an option for the EAC partner states which target to attain a single currency for the region by 2024 in line with the bloc’s Monetary Union Protocol.
A CBDC uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation or region. These digital currencies are centralised and are issued and regulated by the competent monetary authority of the country.
The CBDC acts as a digital representation of a country’s fiat currency and would be backed by a suitable amount of monetary reserves like gold or foreign currency reserves.