Lessons on digital currencies from mobile money

Monday February 20 2023
Digital currencies

Experts warn that CBDCs carry threats to economies that can be averted or mitigated by looking to mobile money. PHOTO | SHUTTERSTOCK


Central Bank Digital Currencies have been touted as a potential solution to avert risks posed by cryptocurrencies. The International Monetary Fund says the centrally issued fiat currencies can offer an alternative to highly volatile crypto assets, easing remittance and cross-border payments without the corresponding risks to countries’ monetary sovereignty.

But experts warn that this could result in more damage than good to economies if not done the right way.

A research commissioned by charity organisation Friedrich Naumann Foundation – and done by economist Aaron Thegeya and blockchain expert Prof Bitange Ndemo – shows that the mobile money industry has crucial lessons for successful implementation of CBDCs.

In a policy paper titled, From Mobile Money to Digital Cash, the experts note that the continent’s mobile money experiences can inform the right regulations, technologies, economic policies and socio-cultural dogmas in the era of digital money.

Long implementation history

“While CBDCs are still nascent, mobile money ecosystems have a long history of implementation spanning over a decade, and have had a transformative impact on financial systems in a large number of countries around the world,” the paper reads.


As more countries begin to experiment with the novel technology, experts warn central bankers not to repeat mistakes made in mobile money implementation.

Regulations, the experts said, could make or break the continent’s digital currencies and must be keenly calibrated to ensure enough headroom for innovation but also stringent enough to curtail illicit activity and uphold integrity.

For instance, there has been no regulation in many jurisdictions to ensure mobile money costs are progressive enough, resulting in high costs to transact small amounts. The research shows that this pricing model “discourages use [of mobile money] for the completion of some transactions.”

Pricing systems

“The imposition of progressive, or at the very least non-regressive pricing systems for digital products and services offered through CBDCs will maximise uptake, and support financial inclusion,” the experts said.

Central bankers should also be aware of the potential for CBDCs, just like mobile money, to drive inflationary pressures, while facilitating economic growth, the study suggests.

“The regulation of CBDCs should ensure appropriate consideration of macroeconomic concerns, with regulation balancing inflation concerns raised through the increased velocity of money and the increased economic activity supported through digital transactions.”

Considering the continent’s great digital divide, the experts warn that CBDCs should also be deployed in a manner that “must be universally accessible…so that no one is excluded from accessing a service due to interoperability constraints.”