CBDCs IN GHANA : A BRIEF INTRODUCTION By Moses Ekow Andoh


Digitisation is the natural ‘mystique blowing in the air.’ Technology is changing our lives fast. Anywhere you look, many manual activities have been or are being automated. The era of super intelligent computers are upon us and it is preposterous to resist the evolution.
For our economy, how we spend and what we spend on have changed significantly. Now the wind of change is upon what we spend – money.
Our history tells us exchange of value has evolved from the barter system through cowries to modern currencies issued by centralized banks backed by the resources of the state. The modern money economy is an exchange system of guarantees for value symbolized by special coins and notes marked with security features.
Yet, more glorious days are upon us. A more modern approach driven by modern technology beckons – the digital currencies. Basically, one would describe them as the digital representations of the physical hard cash we are familiar with. And expectedly, they are of improved functionality.
Digital currencies are in two broad forms; digital currencies issued by private firms (cryptocurrencies) and digital currencies issued by central banks – Central Bank Digital Currencies. The latter is our focus here.


What are CBDCs?
Central Bank Digital Currencies (CBDCs) are the digital form of the central bank currencies we have. The Governor of Norges Bank referred to CBDCs as “electronic money issued by the central bank for general purpose users. Such money [being] a claim on the central bank denominated in the official unit of account in the same way as cash”2.
Just as we have notes and coins for the cedi we spend in Ghana, CBDC in Ghana will be the e-cedi3 – a digital form of the cedi notes and coins we use.

The idea of CBDCs have been in the air for over a decade but has only recently received much attention. The World Banknote Summit is reported to have dedicated several sessions to dialoguing on CBDCs in 2024 possibly after realizing the significant decrease in the use of cash due to COVID-19.
This year, the Bank of International Settlements has published a study on central banks’ levels of interest in CBDCs5. It is impressive to note that several central banks showed high interests and are now in advanced stages in considering CBDCs6.

In a more recent report, the Bank of Ghana, Bank of Jamaica and the Federal Bank of Nigeria have indicated they are in the piloting stages of their preparatory works on introducing CBDCs.

The E-cedi
The Bank of Ghana announced in August, 2021 that it has partnered Giesecke+Devrient to pilot a general purpose CBDC in Ghana called the e-Cedi. In the press release, it was indicated that the digital cedi will complement cash, be a secure currency, be able to protect user data, and is modified to suit Ghanaian market needs.7
Sadly, detailed information on the design, policy and legal framework of the e-cedi is regrettably scarce in the public domain.

Possible advantages of CBDCs
The stronghold of CBDCs is financial inclusion. With plans to design digital currencies which require minimal technological sophistication, central banks seek to promote the World Bank’s target of Financial Inclusion For All by 2020 pursued through international policies, agreements and campaigns.8

This is the campaign to bring persons in the informal economy into the formal financial framework of the economy for its associated benefits.
Its main advantage over non-centralised digital currencies is the confidence instilled in CBDCs by virtue of being a liability on the central bank of the sovereign state. The central bank guarantees the value of the CBDC for payment and other exchanges whereas private digital currencies are guaranteed by private entities.
Over physical cash currencies, CBDCs have the notable advantage of transcending space and time. On this, The Bank of England notes the non-financial advantage of CBDCs such as convenience, trust and perceived safety of use.9

Now on functionality,As complementary or supplementary to physical currency, the proposed design of CBDCs allow for easier interoperability and convertibility made possible by cutting-edge technology.10 These speed up payments for local and international, intra and interbank transactions with broad range of functionalities to boost trade and commerce.
Then accessibility,CBDCs also afford the opportunity for individuals and businesses to access money directly from the central bank reducing the cost of the intermediary role of banks and other financial institutions.11In accessing the implications of accessibility, the Bank of England is on the opinion that bank lending rates may be hiked but not insidiously.12

Possible disadvantages of CBDCs
CBDCs may also have their shortcomings. Being a technology based innovation, all the risks of technological frameworks may apply.
First, there are safety concerns with regard to hacking, periodic updates and other cyber-security issues. Users have legitimate concerns of whether the digital currencies on their digital devices are well secure to withstand malware, hacking and other software breaches. With the recent surge in cybercrimes, cyber fraud and other mobile money fraud, the use of CBDCs bring similar concerns.
Data protection is another concern. Data on ownership, balances in accounts and user transaction must either be protected or not stored at all. The privacy of transactions and the type of ledgers to be kept have data security concerns. Breach of these principles will reduce the confidence user have in the e-cedi because many users will be uncomfortable with the state or private banks knowing their account balance or spending history at will especially coming from a background of not traceable cash dealings.

The cost of designing, launching and operating a digital currency also presents concerns with public spending. Most central banks, including the Bank of Ghana, outsource the design and operation of these digital currencies to private multinationals which charge huge amounts.
Aside from these costs, there is the pressing need for the Bank of Ghana to improve their infrastructure to accommodate the new baby. There will be the need for new technological devices, an enabling legal framework, adequate regulatory resources and capacity, monitoring and evaluation and other miscellaneous costs.
For a struggling emerging economy with huge debts to GDP ratios, there is a legitimate concern about public spending on pressing necessities instead of luxury. This pushes us to ask if an e-cedi is necessary at this time and require proof of the pressing demand therefor as for the same reason, the Federal Bank of the USA has stated that CBDCs are not on their bucket list anytime soon.

Recommendations and Conclusion
Despite the few shortcomings, the e-cedi exhibits impressive potential to improve the Ghanaian economy by fostering financial inclusion, trade and commerce. I find it a commendably bold step for the Bank of Ghana in line with the Digitize Ghana agenda to be a trailblazer in Africa (even ahead of Nigeria which is the biggest economy in Africa).
Nevertheless, issues linger on which deserve attention.

There is the need for increased public engagement on the subject matter as it appears the mainstream discourse in the country has not captured the phenomena exhaustively. In the UK, South Africa, Norway and other states considering CBDCs, there have been open invitations to the public for input into policy, design and implementation of the digital currency.

Then again, there is the need for public education on the e-cedi to educate the public on its viability, functionality, and reliability. Else, the Bank of Ghana risks the e-cedi being faced with ridicule and mistrust especially from the rural and informal sectors.
All in all, the literature and data available suggest that CBDCs are a strong positive leap forward. Giving the experts the benefit of the doubt, I look forward to the e-cedi and I urge you to welcome it.


REFERENCES

1 BA English and Psychology.; LLB (University of Ghana). Email: m.ekowandoh@gmail.com.
2 Norges Bank Papers. Central Bank Digital Currencies; Third Report of Working Group. 2021(1).

3 Bank of Ghana. Bank of Ghana partners with Giesecke+Devrient to pilot first general purpose
Central Bank Digital Currency in Africa. Press Release. 11-08-2021.
4 eCurrency. World Banknote Summit Devotes multiple sessions to Central Bank Digital Currency. (April,
2020). Accessed on https://www.ecurrency.net/post/world-banknote-summit-devotes-
multiplesessions-to-central-bank-digital-currency.
5 Bank of International Settlement. Central bank digital currency: the quest for minimally invasive
technology. BIS Working Papers. 2021(948).
6 Ibid.
7 Bank of Ghana Press Release Supra.
8 World Bank Financial Inclusion Initiatives.; Global Partnership for Financial Inclusion, Financial
Inclusion Action Plan 2014.; UN Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA) set up for the purpose,
9 Bank of England. New forms of digital money. Discussion Paper. (June, 2021)
10 J. Dharmapalan & C. H. McMahon. The Case for digital legal tender; central bank issued digital
currency and its implication on financial inclusion. 2016. eCurrency. 11 Op Cit. 12 Supra.