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Central bank digital currency in Africa: Implications for cross-border business transactions

The emergence of Central Bank Digital Currencies (CBDCs) introduces transformative potential for international business, particularly by enhancing cross-border transaction efficiency, reducing costs, and minimising currency exchange complexities. 

Unlike traditional digital currencies, CBDCs are government-backed, which offers greater stability and reliability for international transactions.

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For multinational corporations, CBDCs could reduce dependency on intermediary banks, leading to increased transaction speed and efficiency, which is crucial for global trade. 

However, these benefits are tempered by regulatory challenges, particularly in navigating the divergent approaches to CBDC implementation and governance, which may lead to “digital currency fragmentation” where inconsistent standards across jurisdictions complicate international transactions (Prasad, 2021).

CBDCs also raise critical issues for regulatory compliance, particularly in adhering to anti-money laundering (AML) and counter-terrorism financing (CFT) protocols. 

Varying national standards could impose additional compliance costs on multinational companies, affecting cash flow and potentially discouraging foreign investments in regions with stringent CBDC policies (G7 Report on CBDCs, 2021). 

Harmonising these regulations internationally is essential to ensure that businesses can leverage CBDC benefits while minimising regulatory complications.

Emerging markets

Africa’s engagement with CBDCs highlights both the innovative potential and regulatory challenges associated with digital finance in emerging markets. Nigeria's launch of the eNaira, the first retail CBDC in Africa, represents a landmark move aimed at enhancing financial inclusion and modernizing the country’s payment systems. 

The eNaira enables faster and more secure digital transactions, aligning with Nigeria’s financial inclusion goals and its drive to transition to a more digital economy (Central Bank of Nigeria, 2021). 

Meanwhile, Ghana is advancing its CBDC initiative with the e-Cedi, introduced under the “Digital Ghana Agenda” and currently in a pilot phase. 

This CBDC pilot reflects Ghana’s objectives of strengthening digital payment frameworks and supporting financial inclusion across rural and urban areas (Bank of Ghana, 2021).

Other African nations are cautiously examining the regulatory implications of CBDC implementation to address challenges unique to their economies. 

For instance, South Africa, one of the continent’s largest economies, has been assessing the feasibility of a CBDC through Project Khokha, which aims to explore the use of CBDCs for interbank transfers. 

The South African Reserve Bank (SARB) is focusing on a wholesale CBDC model that could improve the efficiency of interbank settlements while reducing reliance on intermediary banking institutions (SARB, 2021). 

This project highlights a slightly different approach, as it prioritises interbank transactions over direct consumer use, suggesting a unique adaptation to address domestic financial infrastructure needs (SARB, 2021).

Kenya, another key economic player, is also exploring CBDCs. The Central Bank of Kenya (CBK) has published a discussion paper outlining potential frameworks for a digital currency, stressing that the introduction of a CBDC would need to be gradual and thoroughly assessed to avoid disruptions to Kenya’s financial systems. 

Digital transaction

The CBK’s emphasis is on enhancing digital transaction efficiencies while safeguarding monetary policy and financial stability (CBK, 2022). 

However, the regulatory approach has been cautious, given Kenya’s robust mobile money ecosystem, particularly through M-Pesa, which already supports a high volume of digital transactions.

These varied approaches among African nations underscore the complexities of CBDC adoption in a fragmented regulatory landscape, where each country tailors its CBDC strategies to local economic conditions and regulatory priorities. 

While Nigeria and Ghana aim to provide direct consumer access to digital currencies to boost inclusivity, South Africa and Kenya lean toward models that bolster banking infrastructure and financial stability. However, the lack of harmonised regulatory frameworks presents challenges for cross-border CBDC functionality. 

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International cooperation on regulatory standards advocated by institutions like the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) - remains essential to avoid “digital currency fragmentation” and to support seamless, secure, and compliant CBDC use in global trade (IMF, 2021; BIS, 2022). 

The IMF has published guidance advocating cross-border interoperability standards and encouraging collaboration among central banks to address compliance issues, such as AML and CFT, which are critical for seamless international CBDC transactions (IMF, 2021). 

Similarly, the BIS, through its Innovation Hub, is working on initiatives like Project Dunbar, which focuses on developing shared platforms for cross-border CBDC payments, enabling multiple central banks to issue and transact in digital currencies within a unified infrastructure (BIS, 2022).

The writer is a Nigerian business advisor with an advanced degree and Business Law certification from Duke University School of Law, United States. 

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She has extensive expertise in guiding international businesses through regulatory landscapes, enabling foreign direct investment in Africa and ensuring compliance with African regulatory standards. 


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