The International Monetary Fund (IMF), a major lender, has instructed the Kenyan central bank that its proposed digital shilling must “cause no harm” to the current digital currency used in the private sector. The lender emphasized that the central bank’s digital currency (CBDC) proposal must “not stifle such welcome digitalization developments by taking away customers of banks and other digital finance providers.”
Keeping the payment system open and competitive
The proposed digital currency from the Kenyan central bank should complement the current digital currency used by the private sector, not replace it, according to the International Monetary Fund (IMF). The digital currency issued by the Central Bank of Kenya (CBK) could potentially reduce transaction costs to the point where it drives out mobile money providers like M-Pesa, the global lender insisted, if no safeguards are put in place.
The IMF stated in its commentary that it wanted the CBK’s digital shilling document to explain how the central bank planned to keep the payment system open and competitive, according to a report by The Nation.
“The paper could state the intent of potential issuance of CBDC is to complement rather than substitute existing private-sector digital payment solutions, and affirm CBK’s commitment to an open, competitive payment system. We note in this regard that the balance between central bank money and private sector payment instruments is not fixed over time, and there is no ‘right’ balance,” the IMF is quoted as stating.
Besides posing a threat to fintech, the CBK’s proposed digital shilling also poses a threat to banks, which have also made “remarkable progress in developing digital solutions.” According to the IMF, the CBK’s digital shilling paper must make it clear that the proposed digital currency will “do no harm.” It must “not stifle such welcome digitalization developments by taking away customers of banks and other digital finance providers.”
The IMF also argued that the digital shilling must also not result in the increased cost of financing for banks, or deny “banks of valuable information they obtain through establishing customer relations.”
