Ethiopia's Progress Toward a CBDC in Economic Reform

In a significant move towards economic modernization, Ethiopia is laying the groundwork for the introduction of a central bank digital currency (CBDC). The National Bank of Ethiopia (NBE) has prepared two key proclamations as part of a comprehensive economic reform strategy, which includes establishing a legal framework for a CBDC.

Key Proclamations by the National Bank of Ethiopia

The proposed NBE Proclamation outlines the creation of a legal structure for the potential rollout of a CBDC, alongside measures to boost the NBE’s capital and implement consumer protection laws. Another crucial piece of legislation, the Banking Business Proclamation, addresses the liberalization of foreign investment in the banking sector, introduces corrective measures for underperforming banks, and sets up a regulatory sandbox to foster innovative financial solutions.

These proclamations have already received the green light from the Council of Ministers and are poised for introduction to the House of Representatives.

A Broad Agenda for Economic Reform

These legislative changes are part of Ethiopia’s Homegrown Economic Reform Agenda, aimed at revitalizing the economy. The government's interest in CBDCs was highlighted by The Reporter, a private Ethiopian newspaper, in April. The paper mentioned that a study on CBDCs would commence in June and that the NBE plans to join the "Cross Border Payment System" by December, although details about this system remain unclear.

Ethiopia has been proactive in economic liberalization, notably ending the state monopoly on mobile money services. The country is already leveraging blockchain technology for major government transactions.

Africa's Mixed Experience with Cryptocurrencies

While crypto adoption is gaining traction across several African nations, challenges like low internet penetration persist. Success varies: for instance, the Central African Republic’s adoption of Bitcoin and the launch of its non-CBDC government cryptocurrency, Sango, met with limited success. Currently, the Sango currency website is not operational.

In Ethiopia, digital currencies are still illegal, but the country has issued licenses to numerous data mining firms, attracted by the low electricity costs for crypto mining. Additionally, there are plans to introduce the Web3 Fuse payment system.

The Continent's Growing Interest in CBDCs

At least 18 African countries are exploring CBDCs. Nigeria’s experience with the eNaira, launched in 2022 as the world’s second active CBDC, has been mixed. Meanwhile, Zimbabwe has introduced a new currency backed by a government-issued gold token.

Ethiopia’s steps towards a CBDC represent a significant stride in its broader economic reform efforts, positioning the nation at the forefront of financial innovation in Africa.