18 Dec CBDCs and Their Possible Impact on Online Payments Across Africa
My friend Antony Lewis just wrote an insightful article on CBDCs and how similar they might be to cash. With his hypothesis in mind, I want to explore how CBDCs might impact online payments across Africa Antony suggests that cash and CBDCs differ in three important ways and that is Accessibility, Anonymity and Interest. To start with “Accessibility” - cash is ubiquitous and anyone can get and give it without having to do any registration or qualification. This would not be quite the same with a CBDC in the hands of a consumer - guaranteed there would be some qualifying criteria for holding it which would slow down accessibility. You can imagine that a rural person or child could get their hands on some cash, but might not have the means for acquiring and giving digital cash in the form of a CBDC. As in the case of many Africans they might not have a phone, they might not be old enough, literate enough etc. Then let's talk “Anonymity”. There is no way that even the most enlightened government would facilitate the distribution of CBDCs without knowing something about the individual and it is extremely likely as in the case of Nigeria where the ability to transfer money is linked to a national ID/tax number. So is a CBDC more like cash or is it more like a bank account where they want to know who you are and to track your usage? With governments seeing their role as custodians of the economy, it is most likely that there will be KYC required to participate in the system. For example in the case of South Africa, the Reserve Bank would like to know how much money you have taken out of the country as part of their capital controls. And Antony’s last point, “Interest” or shall I say the ability to expand or contract the money supply to have their desired impact on the financial markets, economy and their citizens. Cash enables governments to expand supply but it is very difficult to take cash out of the system. Citizens also get no interest on their money when it's under their mattress but there is the possibility that holders of CBDCs could qualify for interest. Or they may experience the opposite in the form of negative interest (a haircut) depending on the impact the regulators would like to have on the market. CBDCs are in fact more like centralised bank accounts with all the usual anomalies of KYC, AML, qualified access, ability to shrink and expand supply, track spending habits, collect taxes easily etc. CBDCs are going to be a very popular development in African countries. It makes perfect sense for the government to achieve their objectives with this sort of direct control over their economies and citizens. This is not the utopian, libertarian view of permissionless, borderless, decentralised currencies of the people and the internet, but centrally controlled, permissioned systems and currencies that will continue to subject their citizens to the whims of the autocracy. Will it be good for online payments and eCommerce? Without a doubt. The more digital an economy is and the more widely held and accessible the currency, the more it will catalyse financial inclusion and adoption of eCommerce as a result of easier payment. All happening on a mobile phone. Contact us now at African Payment Solutions for your eCommerce payments across Africa. Thank you to Antony for the inspiration - https://bitsonblocks.net/2019/12/17/how-unlike-cash-will-cbdcs-be/