Vice President Dr Mahamudu Bawumia says African economies need digital currencies backed by Central Banks to give credibility to transactions.
“Digitization and the advent of digital currencies is something that is definitely coming. We are facing it and I am very, very happy that the Central Bank of Ghana is beginning to pilot digital currency and I think it will ultimately be the way to go for Africa.
“That, we will adopt, or we should end up trying to adopt a digital currency.
But I think that a digital currency that is backed by the central banks; that gives a lot of credibility to transactions and I think this is where we should be heading and the Bank of Ghana is leading the way and I expect other central banks to come forward with this in the future. It is the way to go”.
Vice-President Bawumia made the remarks when responding to a question on the readiness of the continent for an African digital currency, especially with the presence of the Africa Continental Free Trade Area (AfCFTA) at the Fifth Ghana International Trade and Finance Conference held in Accra.
The Central Bank-backed digital currency, which would be known as ‘e-cedi’ would allow households and businesses to directly make payments using electronic money issued by the Central Bank.
Blockchain-based Central Bank Digital Currency is an advanced, secure form of regulated national digital currency built on advanced blockchain technology and authorised by the Central Bank.
It has one-to-one exchange rate with fiat money that allows for the gradual migration towards central bank digital currency and also maintains adaptability with multifold strategies by the central bank.
The Vice-President said a digital currency that was backed by the Central Bank gives a lot of credibility to transactions, saying; “I think that is where we should be heading and the Bank of Ghana is leading the way and I expect other Central Banks in Africa to come forward with this in the future”.
The conference was attended physically and virtually by some senior officials of African Central Banks, the African Union, the Diplomatic Community, members of West African Monetary Institute, and key stakeholders of AfCFTA.
The event was held on the theme: “Facilitating Trade and Trade-Finance in AfCFTA; The Role of the Financial Services Sector”.
Dr Bawumia said Intra-African trade had created the need to establish a Single Central Payment platform on the African continent where financial system operators could carry out all cross-border payments smoothly.
To that end, the Vice-President believed that the Pan African Payment and Settlement System(PAPSS)- a central payment and collection infrastructure- would allow businesses on the continent to clear and settle transactions in their local currencies without depending on third-party currencies.
He said it would also provide an alternative to the current high-cost and long correspondent banking relationships by facilitating trade and other economic activities across the continent through a single, low-cost, and risk-controlled payment clearing and settlement system.
Vice-President Bawumia noted that digitisation had become one of the most consequential policies of the President Akufo-Addo’s government and pivotal towards increasing economic activities, macroeconomic stability, and growth.
In that vein, a robust and resilient financial system would provide an impetus for productive investments, expand opportunities for jobs and wealth creation.
“As you may recall, in a bid to improve liquidity and strengthen the banking sector, the Bank of Ghana implemented a new prudential regulatory framework.
“The banking sector clean-up was aimed at promoting a financially stable banking sector.
“Concurrently, digitization has also become one of the most consequential policies of the Nana Akufo-Addo government. When the scourge of the COVID-19 pandemic hit and forced many economies into partial and total lockdowns, it reinforced the need to pursue digitization,” Dr Bawumia emphasised.
He stated that mobile banking was proving to be a more convenient alternative to traditional banking channels as several routine banking and money transactions were now executed through mobile phones and electronic payment systems.
“Indeed, one has to recognise that for the financial services sector to play its role, there must be financial inclusion.
“The implementation of Mobile Money Interoperability in Ghana has shown that more people can be financially included, and this needs to be rolled out across Africa to ensure the growth of the AfCFTA vision,” he added.
To leverage digital technologies and digitized data, he said, the Central Bank had rolled out a couple of systems through its Ghana Interbank Payment and Settlement Systems (GHIPSS).
They include the e-zwich, Gh-Link, Mobile Money Interoperability, and QR Code, and making sure that the underlying payment system runs smoothly is the least we should expect of the financial system if we are to realize the vision of the continental free trade.
He stressed that since payments were at the heart of the day-to-day operations of a free trade system, negative spillover effects could be serious if something goes wrong.
Therefore, in 2019, the Government introduced the Payment Systems and Services Act, 2019 (Act 987), under the supervision of the Bank of Ghana, to consolidate the laws relating to payment systems, payment services, and regulate institutions in the electronic money business.