Ethiopia has initiated steps to introduce a central bank digital currency (CBDC) as part of a broader economic reform plan. The National Bank of Ethiopia (NBE) has prepared two significant proclamations to establish a legal framework and regulatory sandbox for the CBDC.
Legal Framework and Regulatory Sandboxes
The NBE’s new policy changes are designed to create a legal structure for a CBDC “as necessary,” enhance the NBE’s capital, and establish consumer protection measures. Additionally, the Banking Business Proclamation addresses the liberalization of foreign investment in banking, the introduction of corrective measures for problematic banks, and the creation of a regulatory sandbox for innovative financial solutions.
The Council of Ministers has approved these proclamations, and they will soon be introduced to the House of Representatives.
Broad Economic Reforms
These proclamations are part of Ethiopia’s Homegrown Economic Reform Agenda. According to the privately-owned Ethiopian newspaper, The Reporter, the government expressed interest in a CBDC back in April, with a study scheduled for June. Furthermore, the NBE aims to join the Cross Border Payment System by December, though specific details about the system were not disclosed.
Ethiopia has already made strides in economic liberalization, including ending the state monopoly on mobile money services. The country employs blockchain-based digital infrastructure for significant government payments.
Mixed Crypto Adoption in Africa
Despite challenges such as low internet penetration, crypto adoption is advancing in several African countries. However, not all attempts have been successful. For instance, the Central African Republic adopted Bitcoin and launched the Sango cryptocurrency with limited success, as the Sango currency website is currently non-functional.
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In Ethiopia, digital currencies remain illegal. However, several data mining firms have received licenses to exploit the country’s inexpensive electricity for crypto mining. Plans are also underway to introduce the Web3 Fuse payment system.
CBDC Initiatives Across Africa
At least 18 African countries are researching CBDCs. Nigeria’s eNaira, launched in 2022 as the world’s second live CBDC, has seen mixed results. Zimbabwe has introduced a government-issued gold-based token as part of its latest currency initiative.
