After Nigeria, Tanzania wants to be the second African country to introduce a central bank digital currency (CBDC)to their economy.
Tanzania’s Central Bank Governor said they are taking this venture super seriously to ensure that the country is not left behind as the world shifts to digital currencies.
Similarly, Indonesia’s central bank announced that they are working on their national CBDC because citizens are keen on cryptocurrencies. They believe this is the next step to boost domestic and international payments.
Many countries respond to crypto in different ways — Nigeria and China have criminalised its use while countries like Panama and El Salvador continue to invest in it — but they all seem to agree that CBDCs are relevant as a viable investment. Nigeria and China launched theirs earlier this year, and at least 80% of world leaders have indicated some interest in developing their own digital currencies.
What are CBDCs? They are a less risky version of the money in your bank account.
CBDC is the virtual version of a country’s currency issued and regulated by its central bank. They can be used, just like traditional currency, to buy goods and services in the country.
CBDCs are tied directly to the central bank’s reserves, so you don’t have the risk of losing all your money as you might if a traditional bank that holds your funds goes bankrupt.
They’ll make international payments easier: Crypto transactions have proven that we don’t have to spend obscene amounts and wait days to get money from other countries. Likewise, economists agree that CBDCs will make global trade easier by reducing the cost of international transactions and cutting the payment time from five business days to seconds.
CBDCs vs crypto: While CBDCs and cryptocurrencies (digital assets) like Bitcoin have the same security components, they differ in control and issuance.
- Typical cryptocurrencies can be very volatile. On the other hand, CBDCs are controlled by the country’s central bank, so they tend to be more stable.
- Cryptos are also decentralised, meaning they can be sent directly from user to user without institutional intermediaries. Instead, CBDCs are managed by the country’s central bank, which acts as an intermediary between sender and receiver.
What’s in it for Tanzania and other countries?
While CBDCs are still in the early test stages, the general belief is that they could help move economies further into digitisation. This is because CBDCs are designed to be cheaper and less documentation-oriented than bank accounts, giving countries with high underbanked populations a chance of economy-boosting integration.
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