UNCDF shines its lens on the impact of piloting the e-Cedi on building a digital economy.

In Ghana, the national digitization agenda aimed at formalizing the economy was given a boost with the launch of a slate of new policies in 2019. Since then, COVID-19 has accelerated the digitalization of all economies and the interest for digital currencies. As a result, the Bank of Ghana is looking into piloting and eventually issuing the e-Cedi, a digital currency designed to support the emerging digital economy.

The foundations for a central bank digital currency can also be found in the National Financial Inclusion Development Strategy (NFIDS), the Digital Payments Roadmap, and finally, the Digital Financial Services (DFS) Policy. The Bank of Ghana (BoG) has championed a conducive regulatory environment - and this has ultimately resulted in Ghana’s financial inclusion increasing from 42% in 2014 to 58% in 2017 (Findex) driven by mobile money (MM) accounts. By end 2023, this figure is poised to increase to 75%. (NFIDS, 2017-23).

Earlier this year, BoG has announced the pilot of a Central Bank Digital Currency (CBCD) in line with its digital transformation agenda: excitement mixed to skepticism have spread in the ecosystem since the announcement. Nigeria announced its CBDC launch last October and the discussion is now back in the spotlight.
Leveraging on this momentum, this article aims to draw some light on this pioneering project as well as sharing some open questions for practitioners to ensure that such digital innovations are leveraged for greater inclusion.

Is the e-Cedi really the panacea for financial exclusion?
The promoters of the e-Cedi state that the Ghanaian CBDC is designed to operate without a bank account or a smartphone, erasing the challenge related to smartphone ownership, especially in rural areas.

According to the National Communication Authority and Ghana Statistical Service Household Survey on ICT in Ghana (March 2020), out of a total of 5,946 households interviewed across the 16 regions of Ghana 63.2% of individuals aged 5 years and older in urban localities own a mobile phone compared to 44.8% in rural localities. The e-Cedi would be a game-changer for digitally including hard-to-reach populations with low levels of digital literacy who still remain excluded from the formal financial sector.

It will complement existing bank notes and coins issued by the BoG, and by being available to everyone everywhere, it will be supported by the belief that it can fill the gap. It will complement the rise and usage of electronic cash as it ensures seamless transfer of value for the payment for goods and services, building on the transformative role electronic payments systems have made in poor and rural communities in the last decade in Ghana.

Finally, Government-to-persons payments will truly be seamless with less dependence on traditional financial systems, which remain inaccessible for rural population.

Financial inclusion has indeed been one of the primary motives for issuing a Central Bank Digital Currency (CBDC). “CBDC presents a great opportunity to build a robust, inclusive, competitive and sustainable financial sector, led by the Central Bank”, said Governor of the Bank of Ghana, Dr. Ernest Addison, at the launch of the partnership with G+D, the provider selected to develop the solution. Considering the impact of the recent pandemic, the benefits of a virtual currency in the 21st century seem evident: diversifying payment systems whilst maintaining the safety and robustness of the payment ecosystem, improving efficiency in cash management, and streamlining the processes and procedures of managing currencies.

With other West African countries like Nigeria who recently launched the eNaira in October 2021, some experts look at CBDCs as positive prospects for cross-border trade as that could perhaps facilitate currency harmonization across the continent.

The Bank of Ghana has stated that it is exploring a CBDC with the following objectives ‘to complement and serve as a digital alternative to physical cash thus driving the Ghanaian cashlite agenda and also aims to boost digital financial services and financial inclusion amongst all demographic groups. The e-Cedi seeks to guarantee secure, consecutive offline payments in case no network connection is available’ (press release Bank of Ghana, Aug 2021).

Will the e-Cedi widen the digital divide?
Though supporters of CBDCs have ascribed financial inclusion as one of its benefits – mainly due to the lower transaction costs, concerns remain. One that comes to mind is on the issue of inclusiveness. Will the e-Cedi really be inclusive for all? For instance, at the national level, the Household Survey on ICT shows that over 60% of mobile phone ownership is mainly located in urban areas; device ownership is indeed one barrier that can prevent the uptake of such a digital currency. Though the e-Cedi will be independent of an account or a smartphone, questions remain around the literacy level and preparedness of the population to use such innovation.

A recent human-centered design research conducted in the Ashanti region of Ghana by UNCDF (Sept 2021) confirms that most Ghanaians are suspicious of anything cyber, electronic or virtual if not adequately backed up by a trusted source or in-person presence. Sensitization needs to be in place to ensure uptake and usage by vulnerable groups.

Cyber security and fraud issues for the last mile and less literate groups are also a matter of concern with the pilot, and these concerns will be paramount in the minds of many skeptics. Data protection, data privacy, anonymity and AML/CFT issues have cropped up since this pilot was announced in Ghana. At the ecosystem level, questions remain about the impact that such solutions could have on the financial sector, and the potential consequences of giving the public direct access to the central bank, potentially leading to a loss of confidence in the commercial banking sector and the huge liquidity risks this entails.

In conclusion, the design of Ghana’s first virtual currency provides a lot of hope for the unbanked - the upsurge in the value of mobile money transactions in Ghana jumped from GHS 45.3 billion in June 2020 to GHS 89.1 billion in June 2021 according to data from the Bank of Ghana. This suggests many people are moving away from traditional banking to easily accessible alternatives. However, inclusiveness still needs to be assured to accomplish the digital transformation agenda of the country and leave no one behind. Key aspects for policymakers to take into consideration while rolling out the pilot can be grouped as follow:

• KYC restrictions in the account-based system and the tradeoff between control and utility
• Consumer protection and data privacy
• Effects of the CBDC on the financial sector and its role in retail payments
• The role of the private sector and how this opportunity can transform businesses
• Interoperability with other forms of payment streams
• Literacy and sensitization campaigns for the most vulnerable
• Device ownership and accessibility to technology

Ghana has witnessed that digitalization has already enabled millions of people to access digital money without needing a bank account through the introduction and development of mobile money. This access has had broadly positive impacts such as greater financial inclusion, a reduction in the gender gap and the ability to purchase utilities. CBDCs hold some promises to further make Ghana more financially included – however, careful consideration in terms of policy and regulations, infrastructure, innovation and literacy need to be made to ensure no one is left behind.