Bank of Namibia Explores CBDC for Enhanced Cross-Border Payments

The Bank of Namibia is exploring the issuance of a CBDC to enhance cross-border payments, following guidance from the IMF. While the BoN seeks to improve financial inclusion, the IMF recommended focusing on enhancing existing payment infrastructure rather than rushing to introduce a CBDC. Collaboration with neighboring countries is ongoing, but significant progress has yet to be made.

The Bank of Namibia (BoN) is currently investigating the possibility of issuing a central bank digital currency (CBDC) aimed at enhancing cross-border payments and fostering financial inclusion. In light of a recent technical assistance mission from the International Monetary Fund (IMF), the BoN has entered a preparatory phase in anticipation of a potential CBDC rollout. BoN’s strategic communications director, Kazembire Zemburuka, indicated that the bank is assessing the role of a CBDC in promoting financial inclusion within the country.

The IMF has issued a set of guidelines which suggest a five-phase approach for CBDC implementation, including preparation, proof-of-concept, prototypes, pilot, and production phases. The BoN is actively engaging with central banks in Eswatini, Lesotho, and South Africa to evaluate the feasibility of a CBDC that could facilitate cross-border transactions among these nations.

Despite the BoN’s exploration, the IMF cautioned against an immediate launch of a CBDC, emphasizing that Namibia should prioritize enhancements to its existing payment infrastructure. The IMF’s February report stated that a retail CBDC may not significantly address financial inclusion challenges. Instead, the organization advised Namibia to consider the implications of digital currencies on its monetary policy and financial stability.

In its report, the IMF noted, “As the mission did not find a strong support for rCBDC issuance to address gaps in payments, it recommends against pursuing advanced technological exploration beyond proof-of-concept until tangible benefits of CBDC for payments are evident.” The IMF also recommended that the BoN explore alternative solutions that could support financial inclusion.

Namibia first broached the concept of a digital Namibian dollar in 2022 through a consultative paper on CBDCs. Currently, collaboration with the central banks of Eswatini, Lesotho, and South Africa has progressed slowly, with limited updates available. Notably, Nigeria became the first African nation to launch a CBDC, eNaira, in 2021, although it reported minimal success. In 2023, Zimbabwe introduced a gold-backed digital currency amid currency devaluation, while Ghana plans to launch its CBDC, eCedi, by the year’s end after a previous two-year delay.

In conclusion, the Bank of Namibia is cautiously exploring the potential implementation of a CBDC, with advice from the IMF steering its approach. While there is interest in improving cross-border payments and enhancing financial inclusion through a digital currency, the IMF has recommended prioritizing the improvement of existing payment systems before pursuing a CBDC. This reflects a growing awareness of the complexities involved in launching such currencies and the need for careful consideration of their implications.

Original Source: www.mariblock.com