How the Central Bank Digital Currency (CBDC) will impact the Ghanaian Economy
Cryptocurrency use in African countries like Ghana, South Africa, Cameroon, and other countries across the globe has been on the increase. With the use of cryptocurrency topping the chart and people becoming increasingly sensitized about its potentials and use cases, the government isn’t left behind.
There have been different cryptocurrency policies and regulations put in place by governing bodies to inculcate digital currencies into the traditional finance system. Countries like El Salvador have even adopted a cryptocurrency, bitcoin, as a legal tender. The Ghanaian government isn’t an exception either, and recognizing the importance of cryptocurrencies and digitalization has taken a significant step by introducing a Ghanaian CBDC. With all the hype about the Ghanaian CBDC around, you probably wonder how this all affects you. But firstly, it is essential to understand what a CBDC means.
Source: UGC
What is CBDC?
CBDC is an acronym for Central Bank Digital Currency. It is a legal tender that is issued by a central bank in a digital format. It is a digital representation of the traditional fiat currency. It can be exchanged directly for fiat currencies and vice versa. Unlike most cryptocurrencies (digital currencies), CBDC is not decentralized because the nation’s central bank issues it.
You might be wondering, “if CBDC is simply a digital representation of Ghanaian Cedi, what makes it so different from having cedis on your mobile banking app?” They are not just digitalized cedis but a currency issued by a central bank. This means they combine some of the benefits of cryptocurrencies and fiat currencies in one new currency. They are automated like other digital currencies which means Ghanaians can use them to complete transactions faster and without the need for middlemen. Yet, like fiat currencies, they are not as volatile as cryptocurrencies. This is because they are tied to a reserve like stablecoins which is maintained by the central government. They are handled digitally and stored in a digital wallet and can be accessed on your devices.
How CBDC may affect the Ghanaian economy
The Bank of Ghana, First Deputy Gov. Maxwell Opoku Afari, announced that the last phase towards implementing the digital cedi is expected to kick off in September. Earlier in August 2021, its partnership with Giesecke & Devrient, which would be providing the needed technology for the digital cedi, was announced. With the date drawing closer, you are probably wondering how it may impact you directly. Well, the Ghanaian CBDC would help improve the economy by:
● Developing a cashless economy
The covid-19 pandemic has once again confirmed the need for a cashless economy. With people cooped up at home because of the necessary lockdown, cash didn’t seem to have much impact. The cost of maintaining cash is very high, making CBDC a better alternative for low-income households. High costs of handling cash and the colossal interchange fees charged when using debit and credit cards are eliminated with CBDC.
● Monetary policy tool
CBDC could be an effective tool for the Ghanaian government in implementing monetary policies. There are many third parties (commercial and retail banks) involved in distributing money across the economy. CBDC would eliminate the costs of these intermediaries by automating the process, thereby creating a direct link between the citizens and the central bank.
● Financial inclusiveness
It is expected that the Ghanaian CBDC would increase financial inclusion across the nation by creating a more reliable financial payment system. The unbanked and underbanked would access and transfer funds without the need for a private bank account. This would help achieve financial inclusion among the masses with no one left behind.
● Crypto adoption
It is expected that introduction of a Ghanaian bank digital currency will further promote crypto adoption in Ghana. With financial inclusion provided by CBDC, citizens would be able to access and invest in cryptocurrencies easier. Through CBDC, new cryptocurrency adopters would learn more about cryptocurrencies and how they work.
How are CBDCs different from Cryptocurrencies like Bitcoin?
CBDCs are different from cryptocurrencies in that unlike other cryptocurrencies they are centralized and regulated by a governing authority, the central bank. In fact, some crypto enthusiasts note that the introduction of CBDCs may raise some concerns which may limits its impact and reach when compared to cryptocurrencies.
● Centralised government
One of the major limitations of CBDC is that it remains centralised by the government. This means that the government still maintains control and authority over the data and transactions between the citizens and banks. It is feared that the government may have the opportunity to evade its citizen’s privacy through the access and data provided through the use of CBDC.
● Limited cross border payments
In truth, CBDC works towards easing cross-border payments by automating the process and eliminating the need for middlemen like commercial and retail banks. Yet, CBDC remains a fiat currency and is often restricted to the region. This means that a Ghanaian trader would experience difficulty in sending funds in CBDC to a South African Supplier. This is because it is not a universal digital currency like bitcoin and the South African trader would need to be able to receive it in their own local currency before it can be fully functional. Bitcoin, on the other hand, can easily be transmitted across the globe easily. This significantly reduces the transaction costs and the transaction process.
● Transparency
Some crypto enthusiasts argue that due to the fact that CBDC is regulated and maintained by the government it may not be able to attain full transparency like other cryptocurrencies. All cryptocurrency transactions are recorded on a public ledger that is easily accessible and cannot be deleted or modified. However, government officials maintain control with the details of transactions being recorded known solely to them. As such crimes like money laundering or embezzlement may be covered or manipulated by the government officials in charge.
Final thoughts
The Ghanaian CBDC creates an avenue to create an inclusive, thriving, and competitive financial system. The benefits offered are undoubtedly noteworthy, and with the proper structure and design, it would achieve its goal of financial inclusion. The flipside of CBDC, although it remains a source of concern, may never become a reality, and CBDC may, in fact, take cryptocurrencies to unprecedented heights.
While Ghanaians await the launch of the CBDC, they can still continuously enjoy the benefits of cryptocurrencies like bitcoin, ethereum, ripple, dash, among others. Armed with a crypto exchange like Yellow Card, whose vision is financial inclusion, Ghanaians can be assured of a secure and trusted financial system. The unbanked and underbanked can access financial services at the tip of their fingers through the numerous payment platforms Yellow Card offers its users. You can buy bitcoin in Ghana at the best rates with zero fees from Yellow Card. Apart from this, Ghanaians can learn more about cryptocurrencies and use them as a tool for wealth creation through its educational initiative, the Yellow Card Academy.
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Source: YEN.com.gh
