Dar es Salaam. Analysts say the Bank of Tanzania’s (BoT) decision to take a “cautious” and risk-based approach to the adoption of central bank digital currencies (CBDCs) is good and will preserve recent economic gains from Tanzania.

“The BoT has made an important and wise move. Before launching a digital currency, make sure you have a fully functional financial system to reduce risk as there is a chance that a slight change in currencies could trigger an economic crisis,” a financial expert said yesterday, Dr. Donath Olomi, to the Citizen.

Although they are touted to offer greater transparency and oversight of ongoing transactions, digital currencies are also considered prone to privacy threats and cyberattacks.

“There are cyber dangers like hacking into institutional or customer data that can pose serious risks to the national economy,” said veteran banker and analyst Kelvin Mkwawa.

Mr Mkwawa said that since more than 70% of Tanzanians still reside in rural areas, the adoption of CBDCs – whether retail (which are issued to the general public) or wholesale (financial institutions holding reserve deposits with a central bank) – would require more time to be fully integrated into the Tanzanian financial system.

A partner of Bankable Tanzania, Mr. Ivan Tarimo, said that a phased approach by the central bank could be a safe bet, but the BoT can continue to explore CBDC through trials in a particular segment of the market. .

“Before integrating it into our monetary system, there must be time to study more and conduct more in-depth research. Authorities can gain a better understanding of a particular market segment by conducting in-depth trials,” he said.

While the CBDC is also associated with improving financial inclusion for the unbanked population, its adaptability also depends on the demand and willingness of the general public to use it as a form of payment.

An economist from the University of Dar es Salaam, Dr. Wilhelm Ngasamiaku, said the CBDC could be a boon for financial inclusion. However, he added that before Tanzania fully commits to this, it needs time and resources in addition to continuous learning from experience, including experiences shared across countries.

“The rapid development of mobile money transactions and mobile banking shows how much we are improving every day. Over time, we will catch up with digital currencies,” Dr. Ngasamiaku said.

The World Bank has also suggested that understanding each jurisdiction’s landscape and key stakeholders is an important first step in assessing whether a CBDC could be an effective option to address financial exclusion.

As the public waits to hear the BoT’s decision on the adoption of digital currencies following its June 2021 statement, the central bank is now saying that after extensive research on the subject, it has decided to opt for a “prudent” and risk-based approach.

CBDCs are digital versions of cash that are issued and regulated by central banks.

They are different from cryptocurrencies which are tradable digital currencies or assets based on blockchain technology.

The BoT said in a statement released over the weekend that it will continue to research and determine which technology would be most appropriate and suitable for issuing Tanzanian shillings in digital form.

“Upon completion of the research phase, the bank will provide information to the general public on the way forward, which could include a roadmap for transitioning to CBDC adoption,” the central bank said in a statement. the press release from its directorate of financial deepening and inclusion.

According to the World Bank (WB), to date only three jurisdictions have fully launched the retail CBDC, namely the Bahamas, Jamaica and Nigeria.

Several others have advanced pilots underway, for example the Eastern Caribbean Central Bank, China and Ghana, while others are at various stages of assessing feasibility.

In an article published in December last year, the World Bank also warned that central banks around the world must carefully assess all the implications before adopting the CBDC and create a plan to prevent and mitigate its risks.

“While the introduction of CBDCs may be beneficial, they need to be further tested, over time and across jurisdictions, to draw reliable conclusions regarding their impact in practice,” reads part of the paper from the Commission. BM.

The International Monetary Fund (IMF) has also reported that while CBDCs are more secure and inherently non-volatile, unlike crypto-assets, currencies carry risks that central banks need to consider.

“While a CBDC may have many potential benefits on paper, central banks will first need to determine whether there is a compelling case for adopting them, including whether there will be sufficient demand,” the statement reads in part. IMF publication.

The BoT also indicated that the decision to remain cautious on currencies is also attributed to the fact that one of their research results showed that the majority of central bankers around the world have taken measures to avoid any risk. potential to disrupt the financial stability of their economies.

“It was observed that six countries reversed their adoption of CBDCs mainly due to structural and technological challenges in the implementation phase,” the central bank said.

According to them, structural challenges include the dominance of cash in transactions and the existence of inefficient payment systems, high implementation costs and the risk of disrupting the existing ecosystem.

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