The central bank of one of Africa’s smallest countries, Eswatini, is stepping up its explorations into a potential central bank digital currency (CBDC).
The Central Bank of Eswatini (formerly Swaziland) has signed an agreement with Munich-headquartered Giesecke+Devrient (G+D) – a company that has provided the country’s physical currency since the 1980s and is also working on CBDC in the West African nation of Ghana – to extend and deepen CBDC work.
The landlocked nation, which borders South Africa and Mozambique, has a population of about 1.2 million people but high rates of poverty. It is the continent’s last absolute monarchy.
The central bank’s move follows the first phase of a CBDC ‘diagnostic study’ two years ago that ‘found that a retail CBDC presented the strongest and direct opportunity for the adoption of a digital currency in Eswatini’, the central bank and G&D announced in a joint-press release. Retail CBDCs are designed to be available to the general population, whereas their digital currency siblings – wholesale CBDCs – are for inter-bank use.
With their new contract inked, the central bank and G+D now plan to progress research efforts ‘to gain an in-depth understanding of the practicalities on implementing a CBDC in Eswatini’ – a digital lilangeni that would be a complement to cash. Work will involve a ‘design concept’ of a potential digital currency including aspects of governance, accessibility, interoperability, security and programmability.
‘Foundational policy considerations’ under microscope
“The Central Bank of Eswatini is delighted to have engaged G+D as a technical consultant to walk with us in our journey as we explore and formulate the foundational policy considerations and use cases of a localised CBDC,” said Dr Phil Mnisi, who joined the central bank as its governor in July from a role as chief executive of the Eswatini Sugar Association.
“We are confident that G+D’s technological expertise and their strong regional presence in our continent will allow us to realise all possible advantages of a digital lilangeni and ensure we’re fully equipped to issue a CBDC in the future,” he added.
It is envisaged that at the end of the project, the central bank will ‘understand whether, and how, a CBDC could provide additional benefits and ensure continued access to central bank money, contributing to the development of the country’s diverse and resilient payment system,’ according to the two parties’ press release.
“The Central Bank of Eswatini and G+D have a long history of trusted collaboration that goes back more than 40 years into the early 80s,” said Dr Wolfram Seidemann, chief executive of Giesecke+Devrient Currency Technology. He signed the new agreement alongside Mnisi at last week’s annual meeting of the International Monetary Fund and the World Bank Group in Washington DC.
“We are proud to extend this partnership from providing physical currency solutions to research and explore digital currency services in the future. The Kingdom of Eswatini is among the first African countries to take the step towards a retail CBDC and we are honoured to support this journey towards digital public currency with our expertise,” Seidemann added.
Poverty and healthcare challenges
About one third of Eswatini’s population live below the $2.15/day (about £1.91) (2017 purchasing power parity – PPP) international poverty line, according to the World Bank. The institution also records that the country has the world’s highest HIV prevalence rate among adults aged 15 to 49 – a rate of 27 per cent – which it describes as ‘both a driver and a consequence of high poverty and inequality’.
Private investment in the country ‘has been low, constrained by, among other factors, heavy state involvement in the economy, lack of transparency due to governance challenges (further exposed by the political unrest that happened in June 2021) and a generally weak business environment,’ the World Bank notes.
Eswatini is a member of the Common Monetary Area (CMA) with Lesotho, Namibia and South Africa. Under the CMA, the lilangeni is pegged to the South African rand, which is also legal tender in the country. South Africa’s central bank is itself exploring CBDC possibilities.
Elsewhere in Africa, Nigeria launched its blockchain-based eNaira 12 months ago, making the continent’s most populous country also its first – indeed one of the first in the world – to digitise its currency.
Swaziland’s name was changed to Eswatini in 2018 by King Mswati III in a largely unexpected move announced during celebrations for the 50th anniversary of the nation’s independence.
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