Before money was invented, people bartered for goods and services. Then there was gold (cowries in Africa), followed by the first metal coins, which then evolved into the first paper money, followed by plastic cards. Nowadays, cash and use of cards is becoming of less use with the introduction of mobile and electronic payments (MoMo in Ghana) and crypto currencies.
Money as a medium of exchange has evolved over many decades as we can see. This has occurred due to the various limitations that each form of money posed. In recent times we are seeing an increased interest by researchers and policymakers, particularly central banks, to introduce digital currencies for transacting.
The number of Central Banks across the world who are adopting CBDC’s is actually increasing, and Ghana being one of the fastest African countries taking part in the adaptation of this new payment method: the e-cedi.
What are CBD’s?
Before going into more details about Ghana’s adaptation of CBD’s, let’s talk briefly about what CBD’s actually are. CBD stands for Central Bank Digital currency. This is a digital currency that is issued by a central bank, rather than by a commercial bank.
COVID-19 was one of the events that accelerated this shift towards digital, contactless payments and e-commerce due to the danger of banknotes being a way of transmitting infection. The growth in cryptocurrency in Ghana use has also been a big reason for the government to seek “safer” digital currency alternatives, the reason they came up with central bank digital currencies.
The common motives why central banks across the world are exploring the use of CBDCs include financial stability, financial inclusion, monetary policy implementation, and payment safety and efficiency which will improve liquidity through faster transactions.
It is reported that about 90% of Central Banks are currently exploring this idea, and about 50% are actively developing it, Ghana being one of them. Globally, China is considered the forerunner in the process of issuing the digital yuan or e-CNY. The European Central Bank has also targeted 2025 as the best time to issue its digital money.
Other countries that are also in either the research, exploration or trial phase of CBDCs include Russia, Brazil, Japan, and the Eurozone.
Ghana’s agenda towards a more “digitalised economy”
Since 2003, Ghana has already been developing policies which would aid in accelerating its economy. The integrated ICT for Accelerated Development (ICT4AD) Policy was developed in 2003. Furthermore, Ghana developed a host of documents that collectively provided a view of what its digital agenda might look like.
These include a National Financial Inclusion and Development Strategy (NFIDS) 2017-2023, a Digital Financial Services Policy and a Ghana Digital Payments Roadmap that are, in one way or another, aimed at supporting financial inclusion goals, enabling an appropriate regulatory framework, supporting the development of market infrastructure for digital financial services, supporting fintech and enhancing the robustness of the digital economy. In 2017, Ghana Beyond Aid was also launched to pursue a foreign aid-free country.
In 2019, a slate of new policies were launched under Ghana’s Digital Transformation Agenda, which seeks to position the country as a regional hub for digital services, recognising the opportunity that digital development has for stimulating jobs, enhancing productivity, and accelerating inclusive growth.
As part of the “Digital Ghana Agenda” the Bank of Ghana, in partnership with global technology group, the Giesecke+Devrient (G+D), have been test piloting the issuance of its own general-purpose digital currency referred to as the digital Cedi or E-Cedi.
The Bank of Ghana sees the E-Cedi as a better way to use digital services and also deepen financial inclusion amongst all demographic groups in the country. It also presents an opportunity for the Bank of Ghana to track money supply in order to successfully undertake monetary policies.
There has already been an offline pilot test at a town called Sefwi Asafo. Participants were able to buy products and services from merchants in all kinds of places without any internet connectivity.
How would you use the e-cedi?
It is crafted as a retail token-based CBDC stored in a digital wallet, convertible to Ghana cedis in the form of cash or deposit money on a 1:1 ratio. In other words, the owner of e-Cedis can redeem them for physical cedis and use it for a variety of payments.
Will the e-Cedi really be inclusive for all?
- Offers a more efficient mode of making payments, that is faster to process and with a lower cost. The upsurge in the value of mobile money transactions in Ghana moving away from traditional banking to easily accessible alternatives could be a hope for this new innovation.
- Presents an opportunity for the Bank of Ghana to track the money supply to undertake monetary policies
- It has a stable value (unlike cryptocurrencies), meaning its level of volatility is low
- Could be powerful tool for financial inclusion in Ghanaian economy
- Business who are in the fintech industry could see a loss as the digital currency would be their direct competitor, especially to mobile money
- More control over you and your spending habits by the government as they would be able to track and trace all your transactions
- Literacy levels of non urban population: although the e-cedi is meant to be independent of an account or smartphone, does the whole of Ghana’s population really have the literacy level and preparedness to use such innovation?
- Device ownership and accessibility to technology (and knowledge on technology) could be a barrier for many to accept this new introduction and could actually mean a part of the population is left behind.