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The Central Bank of Kenya (“CBK”) has published a Discussion Paper on the Central Bank Digital Currency (the “Paper”). The publication is meant to stir discussion and responses from stakeholders around the concept of the introduction of a Central Bank Digital Currency (CBDC). We prepare this alert as a compilation of the highlights and to assist in your reading and discussion of the Paper.

It is worth noting that the CBK is not the first nor the only central bank considering the digitization of currency for its people.  Various countries have been motivated to digitize their currencies by a variety of reasons such as reduced usage of paper currency, efficiency in money issuance for geographical reasons and the public need for digital currencies. In this paper, the CBK indicates the uptake of other forms of digital currency such as e-money in Kenya along with the risks and opportunities specific to Kenya as reasons for the consideration of the introduction of the proposal by the CBK.

Understanding the CBDC

In a nutshell, a CBDC is a digital currency issued by a central bank, being a means of payment that exists and transmits in electronic form an electronic value that is exchangeable for a pre-determined and equivalent physical value of local fiat; in our case, the Kenya Shilling.

In the Paper, the CBK proposes the introduction of two types of CBDC, namely retail and wholesale. This categorization is connected to the existing payments landscape in Kenya in which the players, being the CBK and other payment service providers, generally fall into one of these two use categories.

The National Payment System in Kenya is classified into two categories: Large Value (Wholesale) and Low Value (Retail), the difference between them being the values and volumes that are processed in each category.

In its vision of the CBDC, the CBK proposes both a retail and wholesale CBDC issued to serve as legal tender in the same way as the Kenyan Shilling does and to be exchanged at a ratio of 1:1 with the Kenyan Shilling.

While the retail CBDC is to enable low value payments between consumers and merchants, wholesale would be made available to financial institutions with reserves held at the CBK for proposed uses such as improving payments and settlement’s efficiency and reducing credit and liquidity risks.

The CBDC and choice of technology

It is important to note that the CBDC is not a cryptocurrency and, in the Paper, the CBK lists cryptocurrency as one of various digital currencies that have emerged to facilitate payment transactions.

In addition, the CBK envisions the use of Distributed Ledger Technology to maintain the retail and wholesale ledgers in the various proposed models of CBDC integration. It is noteworthy that the use of the term ‘distributed ledge’ in the Paper can very easily be mistaken to be blockchain. However, the terms ‘distributed ledge’ and ‘blockchain’ do not refer to the same thing. Simply put, the idea behind a distributed ledger is of a database that exists in several locations or multiple participants, while blockchain is one manifestation of a distributed ledger technology.

In the Paper, the CBDC is described as “a solution that can be designed to be technology agnostic and independent so long as it delivers on functionality.” A helpful way to think about what tech-agnosticism is as being a solution is built in such a way that it can work with any other technology with no limitations, which is different from fidelity approaches to technology under which many crypto-assets currently operate on some form of blockchain technology.

According to the Paper, the CBDC, should be able to operate across platforms once implemented. The CBK has been deliberate to propose that the CBDC would be designed for anonymity, traceability, continuous availability and interest rate feasibility, i.e. an asset capable of earning interest.


Given the current payments landscape and the digitization history of payments in Kenya, the issuance of the Paper is a positive step by the CBK in commencing the discussion on the introduction of a CBDC in Kenya. The Paper raises various issues for discussion by various stakeholders arising from the proposed introduction for CBDC in Kenya and highlights the inherent risks therein, including:

  • the possibility of the CBK being in direct competition with existing PSPs and banks; and
  • the significant privacy concerns that would arise from the KYC processes that the CBK would undertake should the CBDC be implemented.

The Central Bank is taking responses and submissions on the Paper up to 20th May 2022.

Netsheria International is happy to work with its clients to assisting in developing stakeholder-specific responses for your submissions. Contact us law@netsheria.com or call us on 0741296087 for any inquiries and support on this matter.

Judy Muriuki,

Associate, Netsheria International


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