Low adoption rates, technical glitches, are CBDCs still relevant for financial inclusion in third-world countries?

Last Friday, Kenya’s Central Bank (CBK) shared a press release where it recognized the growing global interest in central bank digital currencies (CBDC) but stated that it had no short-term or medium-term plans to release one. The apex bank promised to keep monitoring the situation, even though it argued that the “global allure of CBDCs was fading.” 

The announcement not only casts doubt on the potential implementation of a CBK-backed digital currency but also calls to question the worldwide CBDC adoption rate alongside their success rate.  

“If potential central bank digital currencies (CBDCs) are to achieve their policy goals, they would need to be adopted by users and accepted by merchants,” says a report on CBDCs commissioned by the Bank of International Settlements. Although often tagged “revolutionary”, the earliest example of a CBDC was the Avant Card announced by the Bank of Finland in 1993. Avant’s primary purpose was to replace coins for small payments. 

In recent years, many countries have expressed varying levels of interest in CBDC. While the nations have different reasons for exploring the viability of CBDC, the common objective is to improve financial inclusion.  A few – Nigeria and The Bahamas included – have even unveiled digital currencies. Has the adoption rate been mind-blowing?

Read also: What East African countries can learn from Nigeria as they move towards regional CBDC

CBDC acceptance rate: The Bahamas, Eastern Caribbean countries, Nigeria, and Jamaica in focus 

While over 100 countries are actively involved, just eleven have launched CBDCs. They are The Bahamas, eight countries in the Eastern Caribbean region (Saint Kitts and Nevis, Anguilla, Montserrat, Antigua and Barbuda, Dominica, Saint Vincent and the Grenadines, Grenada, and Saint Lucia), Nigeria, and Jamaica. 

Alongside the above countries, eighteen countries including India and China are running pilot programs to ascertain the sustainability of CBDCs. 

In October 2020, the Bahamas launched its CBDC called SAND Dollar, becoming the first country to do so. According to The Central Bank of The Bahamas, SAND Dollar was expected to optimize the country’s payment systems, bridge the gap between citizens and financial services, and discourage money laundering and other related financial crimes.

Nearly two years later, a document published by The Bahamian Central Bank reveals that the SAND Dollar is yet to attract large-scale use. As of 2022, the current adoption rate was 7.9%. Despite being a government-approved answer to the country’s deficit in digital payment solutions, many Bahamians prefer to use debit and credit cards instead. 

We move on to the Eastern Caribbean region where 8 countries (names listed above) collaborated to introduce a universal currency called DCash in March 2021. DCash was designed as a sustainable payment system that would also allow people to send money without paying exorbitant fees.

In January 2021, DCash went offline for two weeks following technical glitches. This meant users could not perform any transaction using the digital currency. This prompted many DCash users to complain about the situation with some saying the digital currency was “badly designed” and that contributed to the issue. 

Although the Eastern Caribbean central bank eventually restored the system, the outage forces one to question the long-term adoption of CBDCs.  

Launched in 2021, Nigeria’s eNaira sought to tackle the issue of financial exclusion, lower the charges attached to remittances, and promote transparency in payments. An opportunity for the West African country’s CBDC to thrive came when the currency redesign policy impacted the availability of cash.  While the apex bank expected millions of citizens to leverage the eNaira, they thronged to mobile money solutions like Opay and PalmPay instead. 

Unsurprisingly, the International Monetary Fund (IMF) said the public adoption of eNaira was “disappointingly low.” The IMF claimed that the CBN recorded 860,000 retail eNaira wallet downloads as of mid-November (0.8% of active bank accounts). Meanwhile, merchant wallets had reached 100,000 downloads, which according to the report, represented a mere “one-eleventh of the number of merchants with Point-of-Sales (POS) terminals—which enables credit or debit card payments.” 

As part of efforts to encourage more eNaira wallet downloads, the Central Bank of Nigeria (CBN) advocated for school fees to be paid using the CBDC. “The CBN is the first in Africa to hold this digital currency, Nigeria is moving forward, and we want to encourage the merchant, everybody to enroll on this platform,” said Esther Tinat, CBN’s Jos branch controller.

It remains to be seen if parents and guardians would find any benefit in this or heed to this call or they, just like everyone else would choose other more viable means.

Jamaica Digital Exchange, popularly called JAM-DEX, is a CBDC promising financial inclusion alongside secure payments. JAM-DEx is also designed to help the control switch to a digital economy. To promote across-the-board support, the Bank of Jamaica on March 2022 offered complimentary $16 payments to the first 100,000 citizens to transact with the CBDC. It soon follows this incentive with two more initiatives called the Small/Micro Merchant Incentive Program and the Wallet-holder Individual Loyalty Program respectively.  

According to a government post, only 190,000 JAM-DEX users existed. Of that figure, 185,410 were individuals, 90 were small merchants, and 4,500 were micro-merchants. Adoption in the Caribbean nation is quite low which, perhaps, explains the slew of incentives rolled out. 

Bottom line 

Like conversations about artificial intelligence and the metaverse, it’s highly doubtful that CBDCs be forgotten. However, central banks across the globe must ensure that they implement actionable strategies to guarantee widespread support from merchants and individuals. 

Consider Nigeria and its problem child – the eNaira. One would wonder why the apex bank didn’t embark on nationwide sensitization campaigns before releasing a digital currency to people plagued by unemployment, high inflation, and most importantly, lack of confidence in the government.  

So, forgive Nigerians if they aren’t keen on using the eNaira immediately. 

The CBN recently visited a federal university in Jos in the Northern region to gain support from students and the academic community in general. Why didn’t they do that earlier? Why didn’t they, like Kenya and other countries, opt to keep observing global trends before releasing the eNaira? 

According to a global CBDC tracker, Kenya is still researching the possibility of releasing a digital currency. This will likely be the status quo until it confirms that a digital currency can solve the longstanding problem of payments for the average citizen. Other countries will follow this route.