The Bank of Tanzania has declared that it is still assessing the viability of introducing a Central Bank Digital Currency (CBDC) but will take a step-by-step, risk-based strategy after identifying multiple issues that could interfere with its implementation. Since their 2021 announcement about possibly launching CBDCs, Tanzania’s central bank established an interdisciplinary expert group to examine the pros and cons of creating a digital currency.
The bank’s team has spent time researching various CBDCs, models of issuance and management, and whether the CBDC should be a token or account-based system. After evaluating their research results thus far, it was revealed that over one hundred countries are at different stages on their path to adopting a central bank digital currency—88 investigating further into the concept, 20 testing with proofs-of-concept from trials, 13 currently in pilot phase stages, and three already launched.
The central bank has noted that numerous countries have chosen to step away from digital currency adoption plans, including Denmark, Japan, Ecuador, and Finland. Moreover, this is due to the structural difficulties in implementation, such as high costs of execution, the risk of upsetting existing payment systems, and cash still holding a firm grip on many markets. In addition, inefficient payment networks are an obstructive hindrance to the successful introduction of a digital currency.
A key area being looked at by the team is also the risks and controls associated with the issuance, distribution, counterfeiting, and usage of currencies.
“Analysis of these findings indicate that majority of central bankers across the world have taken a cautionary approach in the CBDC implementation roadmap to avoid any potential risks that can disrupt the financial stability of their economies,” it added.
At this stage, the bank has not given a clear timeline for when it will decide on CBDCs in Tanzania but says it will “continue to monitor, research and collaborate with stakeholders, including other central banks, in the efforts to arrive at a suitable and appropriate use and technology for issuance of Tanzanian shillings in digital form.”
Following neighboring countries’ efforts to introduce CBDCs, Bank of Tanzania Governor Florens Luoga made a Nov. 26, 2021, announcement that plans were underway in Tanzania to expand research into digital currencies and strengthen the capacity of central bank officials.
Cryptocurrencies are primarily banned in Tanzania following a November 2019 directive from the Bank of Tanzania saying the digital assets are not recognized by local law.
