Tanzania Awaiting the Result of CBDC Adoption

The Bank of Tanzania has announced that it is still weighing the benefits of introducing a central bank digital currency (CBDC) while using a phased, cautious, and risk-based approach. This comes after the country identified several challenges after an initial research phase for CBDC that might hinder its implementation. The East African country formed a technical team to analyse the risks and benefits of CBDCs. Among the challenges identified by the bank of Tanzania were high implementation costs, the risk of disrupting the existing ecosystem, the inefficient payment system, and the dominance of cash determined in the research.

The Bank of Tanzania released a notice on January 14, 2023, about a possible CBDC rollout and the appropriate use of technology to issue Tanzanian shillings in digital form. On November 29 2021, the country declared its intention to launch CBDC and take a cautious and risk-based approach by researching the challenges associated with adoption and looking into different CBDCs. The research was also aimed at finding the models for issuance and management and deciding whether CBDC should be account-based or token-based. The notice stated, "The bank of Tanzania is mindful that CBDC can only be issued by the central bank, therefore falling under its jurisdiction." 

In November 2019, cryptocurrencies were banned as the country's local law did not recognize digital assets as legitimate. In an interview with experts at Bitcoineer, the Governor of the Bank of Tanzania, Florens Luoga, announced on November 26, 2021, that the country plans to expand research into digital currencies and strengthen the capacity of central bank officials. Luoda said, "The efforts to introduce CBDC into the country are underway due to neighbouring countries' efforts to introduce CBDCs." The bank has yet to give a precise time frame for when it will decide on CBDs in Tanzania or when the launch could be expected. 

"Tanzania will continue to monitor research and collaborate with stakeholders, including other central banks, in the efforts to arrive at a suitable and appropriate use and technology," the bank said. The report also explained the steps the central bank took in the research phase to explore CBDC, which included holding conferences and sessions with various stakeholders in the country. while engaging with reputed international organizations like the Association of African Central Banks, the IMF through IMF AFRITAC, and many others, and consulting many private firms associated with CBDCs.

The bank noted, "The research outcome at this point revealed that more than 100 countries in the world are at different stages of the CBDC adoption journey, with 88 at research, 20 at proof of concept, 13 at pilots, and 3 at launch." According to the report's findings, the research has also shown that at least four countries—JJapan, Denmark, Finland, and Ecuador—hhave scrapped the CBDC adoption plan. Countries have entirely moved away from digital currencies, mainly due to structural and technological challenges in the implementation phase. However, this slow approach to rolling out CBDCs shows that the majority of banks across the world are taking exemplary steps in the CBDC implementation roadmap to avoid any possible risks that can disrupt the financial stability of their economies.

 

For instance, a former official of the People's Bank of China, Xie Ping, disclosed that he was disappointed with the results of the country's test of its digital yuan. Ping said, "The results are not ideal, and the usage has been low and highly inactive." Xie Ping added, "What needs to change is the digital yuan acting only as a substitute for cash and only for consumption." The Bank of England has yet to get much support from the UK parliament regarding its digital pound project. According to the cross-party Lords Economic Affairs Committee, CBDCs are a solution in search of a problem. Since 2021, Nigeria's central bank has had CBDC but has had to chastise the country's banks in 2022 for their apathy in promoting the coin to the nation's 200 million citizens. 

African countries have been making considerable strides in the crypto world. On October 19, 2022, South Africa's financial regulator declared cryptocurrency assets as financial products, which came at the end of a long-awaited process of regulating crypto assets in the country. Cryptocurrency platforms offer users advantages and security measures, plus the bonus of opening up business opportunities for various industries in the country.