Digital Currency in Kenya

Kenya has been ranked among top 20 countries with the highest percentage of populations who own digital currency.

The 2021 index by United Nations Conference on Trade and Development (UNCTAD) ranks Kenya in the fourth position, after Ukraine, Russia, Venezuela and Singapore, with 8.5 percent of its population being digital currency owners.

According to UNCTAD, there is an allure of digital currencies in developing countries.  The use of cryptocurrencies also increased globally at an unprecedented pace during the pandemic, reinforcing a trend already underway.

“The cryptocurrency ecosystem expanded by 2,300 per cent between September 2019 and June 2021, particularly in developing countries,” the report says.

“Such private digital currencies have become particularly prevalent in developing countries, entailing considerable risks and costs regarding national monetary sovereignty, policy space and macroeconomic stability,”.

Digital currency is a virtual version of the shilling that can exchange on a one-to-one basis with physical cash and is meant to ease payments and cut transaction costs.

The report by UNCTAD attributes the increased use of cryptocurrencies in developing countries during the pandemic to two main reasons;

1. Attractive prices and speed, through which to send remittances.

“During the pandemic, the already high costs of traditional remittance services rose even higher during lockdown periods due to related disruptions,”

2. Cryptocurrencies, as part of financial investments and speculation, are mainly held by middle-income individuals in developing countries and, particularly in countries facing currency depreciation and rising inflation (triggered or accentuated by the COVID-19 crisis), cryptocurrencies have been perceived as a way to protect household savings.

UNCTAD however cites that there are risks associated with cryptocurrencies and recommends developing countries to consider the following remedies inorder to mitigate the risks;  ensuring financial regulation; restricting advertisements related to cryptocurrencies; and providing a safe, reliable and affordable public payment system adapted to the digital era, such as a central bank digital currency or fast retail payment system.

Digital Currency in Kenya

The Central Bank of Kenya has been planning to roll out a digital currency (CBDC) but the lack of enough smartphone penetration in the country has been a key barrier.

According to CBK Governor Patrick Njoroge, the smartphone issue is delaying the rollout of the central bank digital currency, a virtual version of the shilling which will exchange on a one-to-one basis with physical cash.

33 million (56 percent) of the 59 million cell phone devices connected in the country are feature phones according to official data.

If CBK was to roll out the digital currency in the present situation half of the population in the county would be locked out from transacting in the CBDC.

“The use of the digital currency on 4G-enabled phones would hurt Kenya’s financial inclusion,” Dr Njoroge said in March while updating on the progress of the digital currency roll-out.

Not Enough Smartphones in Kenya for Digital Currency

 

 

Kenya ranked 4th globally in digital currency ownership

Kenya has been ranked among top 20 countries with the highest percentage of populations who own digital currency.

The 2021 index by United Nations Conference on Trade and Development (UNCTAD) ranks Kenya in fourth position, after Ukraine, Russia, Venezuela and Singapore, with 8.5 percent of its population being digital currency owners.

According to UNCTAD, there is an allure of digital currencies in developing countries.  The use of cryptocurrencies also  increased globally at an unprecedented pace during the pandemic, reinforcing a trend already under way

“The cryptocurrency ecosystem expanded by 2,300 per cent between September 2019 and June 2021, particularly in developing countries,” the report says.

“Such private digital currencies have become particularly prevalent in developing countries, entailing considerable risks and costs regarding national monetary sovereignty, policy space and macroeconomic stability,”.

Digital currency is a virtual version of the shilling that can exchange on a one-to-one basis with physical cash and is meant to ease payments and cut transaction costs.

The report by UNCTAD attributes the increased use of cryptocurrencies in developing countries during the pandemic to two main reasons;

1. Attractive prices and speed, through which to send remittances.

“During the pandemic, the already high costs of traditional remittance services rose even higher during lockdown periods due to related disruptions,”

2. Cryptocurrencies, as part of financial investments and speculation, are mainly held by middle-income individuals in developing countries and, particularly in countries facing currency depreciation and rising inflation (triggered or accentuated by the COVID-19 crisis), cryptocurrencies have been perceived as a way to protect household savings.

UNCTAD however cites that there are risks associated with cryptocurrencies and recommends developing countries to consider the following remedies inorder to mitigate the risks;  ensuring financial regulation; restricting advertisements related to cryptocurrencies; and providing a safe, reliable and affordable public payment system adapted to the digital era, such as a central bank digital currency or fast retail payment system.

Digital Currency in Kenya

The Central Bank of Kenya has been planning to role out a digital currency (CBDC) but lack of enough smart phone penetration in the country has been a key barrier.

According to CBK Governor Patrick Njoroge, the smartphone issue is delaying the rollout of the central bank digital currency, a virtual version of the shilling which will exchange on a one-to-one basis with physical cash.

33 million (56 percent) of the 59 million cell phone devices connected in the country are feature phones according to official data.

If CBK was to roll out the digital currency in the present situation half of the population in the county would be locked out from transacting in the CBDC.

“The use of the digital currency on 4G-enabled phones would hurt Kenya’s financial inclusion,” Dr Njoroge said in March while updating on the progress of the digital currency roll-out.

 

Not Enough Smartphones in Kenya for Digital Currency

 

 

 

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