It has been over a year since the Bank of Tanzania (BOT) announced its intentions to launch a central bank digital currency (CBDC), but the bank appears still unsure of the best way to approach the project.
The BOT recently published a notice saying that it will proceed with a “phased, cautious, and risk-based approach” toward developing a CBDC.
- The public notice highlighted the steps taken by the BOT to understand all the aspects of creating and adopting CBDCs.
- These steps include forming a multidisciplinary team, discussions with stakeholders, engagements with international forums and consultations with CBDC technical infrastructure providers.
- From its research, the BOT noted that over a hundred countries are in the CBDC adoption process and all these countries are at different stages, with most of them adopting a cautionary approach to avoid any risk that can threaten the financial stability of their economies.
- The BOT also discovered that it needs to consider the risks involved during the issuance, distribution, and usage of digital currencies, such as counterfeiting and cyber theft.
- The bank wrote:
“It was observed that [six] countries have canceled their CBDC adoption mainly due to structural and technological challenges in the implementation phase.
“The structural challenges include [the] dominance of cash in making transactions and [the] existence of inefficient payment systems, high implementation cost and risk of disrupting [the] existing ecosystem.”
- It added:
“In this consideration, the Bank of Tanzania has adopted a phased, cautious and risk-based approach to [the] adoption of CBDC.”
- It’s worth noting that the Tanzanian economy remains predominantly cash-based.
- The BOT is researching the type of CBDC to issue, the most effective roll-out mechanism, the optimum level of anonymity and whether it should be token-based or account-based.
- In addition, the bank has yet to conclude the suitable technology for issuing and adopting a digital Tanzanian shilling.
- Fellow African country Nigeria built its CBDC on IBM’s Hyperledger Fabric blockchain. There are, however, non-blockchain approaches to introducing a CBDC. Ghana’s CBDC, which is currently being piloted, will not be built on blockchain.
- Despite exploring CBDCs, the use of cryptocurrencies remains prohibited in Tanzania.