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IMF is concerned Kenya’s CBDC might threaten private banks and mobile money operators

The IMF recommended that special safeguards must be put in place for banks and M-Pesa against unfair competition from the digital shilling.

Nairobi, Kenya / Image by: Wikimedia Commons

Sat, 30 Jul 2022, 11:28 am UTC

The International Monetary Fund (IMF) has expressed concern that Kenya’s proposed central bank digital currency (CBDC), also known as the digital shilling, might threaten banks, mobile money operators such as M-Pesa, and other digital finance providers. To prevent what could become unfair competition from the digital shilling, the IMF recommended that special safeguards must be put in place for banks and M-Pesa.

With its lower transaction costs, many see the proposed Kenya CBDC as a serious competitor to mobile money operators to the point of driving firms such as M-Pesa out of business. It may even threaten banks because it will allow customers to bypass lenders, according to a report by The Nation.

With this concern about unfair competition in mind, the IMF is urging the Central Bank of Kenya (CBK) to exercise caution in the development of its CBDC project and ensure that the digital shilling would complement existing privately sector digital money. For this, the IMF recommended special safeguards for banks and M-Pesa.

“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,” the IMF said in its commentary. “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 added that the digital shilling project must not harm or stifle the developments of existing players in the country’s financial industry. For instance, the central bank must not take away customers from banks or increase the cost of financing.

“Given Kenya’s financial sector’s remarkable progress in developing digital solutions, it is important that the paper emphasizes CBDC will ‘do no harm and does not stifle such welcome digitalisation developments by taking away customers of banks and other digital finance providers, increasing the cost of financing for banks, or depriving banks of valuable information they obtain through establishing customer relations,” the IMF said.

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