Tanzania cautious on CBDC adoption after early research

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Tanzania’s central bank said it was still considering the introduction of a central bank digital currency (CBDC), but would take a “gradual, cautious and risk-based approach” after identifying several challenges that could have an impact on its implementation.

According to a January 14 public notice from the Bank of Tanzania, since its announcement in 2021 of a possible deployment of CBDCs, the East African country has formed a multidisciplinary technical team to explore the risks and benefits of CBDCs. .

The bank revealed that its team had conducted research on different types of CBDCs, issuance and management models and whether it could be token-based or account-based.

“The research output to this point revealed that over 100 countries globally are at various stages of the CBDC adoption journey with 88 in research, 20 proof of concept, 13 pilots and 3 at launch,” said said the bank.

The central bank noted that at least four countries, Denmark, Japan, Ecuador and Finland, have publicly canceled plans to adopt CBDCs, while six others have moved away from digital currencies due to challenges. structural and technological in the implementation phase.

Some of these challenges were high implementation costs, the dominance of cash, inefficient payment systems and the risk of disrupting the existing ecosystem, the bank noted.

A key area reviewed by the team is also the risks and controls associated with the issuance, distribution, counterfeiting and use of currencies.

“Analysis of these results indicates that the majority of central bankers around the world have taken a cautious approach in the implementation roadmap of the CBDC, in order to avoid any potential risk that could disrupt the financial stability of their economies. “, he added.

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At this stage, the bank has not given a specific timeline as to when it will make a decision on CBDCs in Tanzania, but says it will “continue to monitor, research and engage with stakeholders, including other central banks, in efforts to arrive at appropriate and appropriate use and technology for issuing Tanzanian shillings in digital form.”

Following efforts by neighboring countries to introduce CBDCs, the Governor of the Bank of Tanzania, Florens Luoga, announced on November 26, 2021 that plans were underway in Tanzania to expand research into digital currencies and build the capacity of officials. of the central bank.

Cryptocurrencies are largely banned in Tanzania following a November 2019 directive from the country’s central bank stating that digital assets were not recognized under local law.

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