The recent creation of central bank digital currencies (CBDCs) in Nigeria and Ghana—with Rwanda, South Africa, Tanzania, and Kenya in the research stages—may further delay the materialisation of a single currency for Africa. The date for the launch of ECOWAS’s eco was January 2020, but that deadline wasn’t met; instead, key players in the region, Ghana and Nigeria, have developed their own CBDCs.
It is important to note that Nigeria is crucial to the creation of the eco not only because it is the region’s biggest country, but also because it is the only country in West Africa with a banknote printer and mint. The West African giant has expended massive resources into the development of its CBDC, the eNaira, perhaps a demonstration of its lack of faith in a continental currency ever happening.
CBDCs can ease cross-border payments, but only if they are built with interoperability in mind. A paper on cross-border CBDCs, published by the Bank for International Settlements (BIS), in conjunction with the International Monetary Fund (IMF) and World Bank, urges collaboration among countries in designing CBDCs to enable cross-border payments.
Some counties have ongoing collaborations for cross-border CBDCs—Project Jasper–Ubin, between Canada and Singapore in 2019; Project Jura, the recent trial between France and Switzerland; Project Inthanon–LionRock, between Thailand and Hong Kong; Project mCBDC Bridge, between Thailand, Hong Kong, China and the UAE; and Project Aber, between the United Arab Emirates (UAE) and Saudi Arabia.
Global payments giant, Visa, developed a new concept called the “Universal Payment Channel” (UPC), which acts like a hub, interconnecting multiple blockchain networks and allowing for secure transfer of digital currencies. It will allow, for example, your cousin from Canada to send USDC, a stablecoin, to you in Nigeria and, by the time it gets to the CBDC wallet, it would have been converted automatically to the eNaira.
Already, cryptocurrencies are viable options for cross-border payments in Africa, bypassing the hassle that comes with transacting across over 40 different currencies and their corresponding diverse financial systems.
It’s time for the AU and ECOWAS to rethink their approach—a physical single currency—and shift their focus to developing a single digital currency, like the EU is doing. Or, better still, African countries must ensure that the digital version of their currencies can easily interact with each other, across borders.