Tanzania’s central bank says it is still considering the introduction of a central bank digital currency (CBDC) but will take a “phased, cautious and risk-based approach”, identifying several challenges that could affect its implementation.
According to a January 14 public notice by The Bank of Tanzania, since its 2021 announcement of possible CBDC implementation, the East African country has formed a multidisciplinary technical team to study the risks and benefits of CBDCs.
The bank revealed that its team conducted research looking at the different types of CBDCs, issuance and governance models, and whether they could be token-based or account-based.
“Currently, the survey results showed that more than 100 countries around the world are at various stages of their CBDC adoption journey, with 88 in research, 20 in proof of concept, 13 in pilot and 3 in launch,” the bank said. :
The central bank noted that at least four countries — Denmark, Japan, Ecuador and Finland — have publicly canceled plans to adopt CBDCs, while another six have moved away from digital currencies due to structural and technological challenges in the implementation phase.
Some of those challenges were high implementation costs, the dominance of cash, inefficient payment systems and the risk of disrupting the existing ecosystem, the bank said.
A key area being looked at by the team is also the risks and controls associated with the issuance, distribution, counterfeiting and use of currencies.
“Analysis of these findings shows that most central bankers around the world have taken a cautious approach in their CBDC implementation roadmap to avoid potential risks that could undermine the financial stability of their economies,” he added.
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At this stage, the bank has not given a clear timeline for when it will make a decision on CBDCs in Tanzania, but says it will “continue to monitor, research and collaborate with stakeholders, including other central banks, in efforts to achieve. suitable and appropriate use and technology for the issuance of Tanzanian shillings in digital form”.
Following efforts by neighboring countries to implement CBDCs, Bank of Tanzania Governor Florence Luoga announced on November 26, 2021 that plans are underway in Tanzania to expand digital currency research and strengthen the capacity of central bank officials.
Cryptocurrencies are largely banned in Tanzania following a November 2019 directive from the country’s central bank that said digital assets were not recognized under local law.