By: Richard Gardner
In its newest publication, “The Evolution of Bank of Ghana Policies on the Ghanaian Payment System,” The Bank of Ghana laid out a short history of digital payments within the country, arguing that the eCedi was simply an extension of decades of financial digitization.
It credited that digitization, in no small part, with “mitigat[ing] the economic consequences of the measures by facilitating economic activity during Covid-19 lockdowns,” and, simultaneously, noted that the current global environment injected “urgency … into Ghana’s payment ecosystem digitalisation effort and necessitated a rethinking of the approach to Digital Financial Services.”
It continued on to detail that “[r]ecent events in the wake of the pandemic have brought to the fore the critical role of Digital Financial Services in promoting financial inclusion, business continuity and sustainability, particularly medium and small scale enterprises (MSSEs) and global trade.”
Ghana’s digitization of the financial sector is one of the infrastructure improvements which makes the country among the most attractive in Africa when tech firms consider expansion. The country’s financial inclusion, as rated by the Global Findex Report, bounced from 41% to 58% in only a few years, from 2014-2017. This growth is significant, and the introduction of a CBDC will, most certainly offer even greater financial inclusion.
The BOG argues that the The Payment Systems Act, 2003 (Act 662) “provided the legal foundation for digitalisation of interbank payment ecosystem” which paved the way for the Real Time Gross Settlements system. It credits that movement with “improved interbank liquidity management, enhanced the efficiency and speed of settlement of interbank payment obligations, and reduced credit and settlement risks,” among other things, including reducing the clearing cycle for cheques.
The paper continued to follow the trials and tribulations which followed Branchless Banking Guideline in 2008, regulations which led to underinvestment in the ecosystem, particularly in comparison to similar programs in Kenya and Tanzania. After four years, a re-evaluation led to the significant growth we’ve seen within the country.
That history with re-evaluating financial regulations should be seen as a boon. The alteration of the guidelines, in response to the poor initial rollout, was the catalyst for significant external investment and resulted in a near doubling of in mobile money accounts, along with a 600% increase in transactional volume, from 2012-2014. What we’ve seen in the CBDC space thus far is an area where trial leads to improvement. Being able to pivot, moving off technology and regulation which doesn’t work as intended, is critical in order to build a CBDC which is adopted by the populace willingly.
Specifically, the BOG noted that “[p]ayment systems development in Ghana has always been user-centric with a strong commitment to financial inclusion. The tiered KYC customer accounts framework for mobile wallets is in recognition of the financial inclusion needs of the unbanked and underserved and ensures that no one is excluded on account of economic and or social standing.”
Ghana will face unique challenges as it moves from the technological to educational aspects of their CBDC rollout. Identifying those challenges now, and working to implement solutions to them, will offer long-term strength to the digital currency, especially as the risks of money laundering and terrorism financing is a real and global issue in this area. The BOG recognizes that “[b]uilding an ecosystem of high integrity is essential to growing the acceptance of digital payments and scaling up financial inclusion.” In practice, that means that service providers will have to align with the country’s Cyber Security Directive and Guidelines for Anti-Money Laundering/Combating the Financing of Terrorism — which aims to stymy bad actors, both from money laundering and launching cyberattacks against the technology behind the platform.
Now, the FinTech and Innovation Office will drive the digitalization agenda of the BOG, and it is more important than ever to focus on the cybersecurity component to digital assets. While most commentators will discuss money laundering before hacking, the risks are not lesser. You must consider that a successful hack against a country’s digital currency will make the populace uneasy about a new technology of which many are already uncertain. Successfully creating buy-in within each community will enhance the efforts of digitization and pay dividends long-term. While it will create more work on the front-end, it will ensure that the e-Cedi is well embraced for decades to come.
Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.