African digital currency may be a relief for African countries, but challenges remain

(Agence Ecofin) – The creation of a digital currency could save African countries the money they use to pay foreign banknote printers. But there are many challenges to this strategy that need to be understood, according to Raymond Gilpin, chief economist and head of strategy, analysis and research at UNDP Africa. He said this on the sidelines of the 16th edition of the African Economic Conference which was held in early December in Sal, Cape Verde.

In an interview with Ecofin, he explained that cash is expensive to print and store, especially in Africa where the climate causes banknotes to deteriorate very quickly. “You have to print more frequently than you would in a country where the climate is not as bad. The cost of printing would also be saved if countries digitized their currencies, ”he said.

These comments echo the public debate on the method of printing banknotes used in Africa. This question sometimes fuels anti-French sentiment in UEMOA. Many say that foreign countries, especially France, to print banknotes for Africa is the continuation of white rule over the dark continent. During a hearing on February 12 on the monetary cooperation agreement between France and UEMOA, Bruno Cabrillac, then deputy director of the Banque de France, indicated that the Central Bank of African States of l West (BCEAO) was the second largest customer for printing banknotes. business, after the euro zone.

Figures from the BCEAO’s financial reports showed that the countries it covers spent 242.2 billion CFA francs ($ 418 million) between 2012 and 2020 to purchase currency badges. Figures for Central Africa are not available. With African countries creating their digital currencies, banknote printers in France, the UK and Germany will lose “their customers”. According to a recent analysis published by the Center for Study and Reflection on the Francophone World (CERMF), 22 African countries outside the CFA franc zone have entrusted the printing of their banknotes and coins to British or German companies.

Given the commercial, and not necessarily political, issues, it is not certain that African banknote production service providers will accept the transition. Nigeria was especially able to launch its digital naira (e-naira) because the country prints its banknotes. Raymond Gilpin warned that “even though African countries have created their digital currencies, this does not solve the challenges associated with the fixed parity system, and therefore with currency buffers.”

Likewise, if security can be enhanced through blockchain, the challenge of the value of the currency created will also have to be addressed. According to some experts, including Anouar Hassoune, CEO of the West African Rating Agency (WARA), the value of African digital currencies could be indexed to its natural resources.

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