Ghana is working towards offering its Central Bank Digital Currency (CBDC) to citizens without an Internet connection. The Bank of Ghana has revealed that the bank is working on a pilot to test the viability of offline payments as it seeks to target the wider populace in line with its stated objective of intensifying financial inclusion all across the economy.
Ghana has already emerged as been one of the frontrunners in Africa with regards to the bold new world of CBDCs in Africa. Its e-cedi project, which is now at its pilot stage – being used by selected potential customers in a sand box type experimental basis to assess its efficacy and identify any operational challenges – is the most advanced CBDC project in Africa alongside its neighbor Nigeria which is set to launch its e-naira at the end of this month.
This puts Nigeria slightly ahead with regards to timelines for introducing its digital currency, but Ghana’s plans for use of its e cedi are more extensive than its neighbor which has not announced plans to make its own version usable off-line. Importantly however both countries are collaborating rather than competing; BoG 1st Deputy Governor Dr Maxwell Afari-Opoku has already revealed that negotiations are ongoing between the central banks of both countries to execute trade financing and financial transfers deals using their respective digital currencies through “the back door”.
The Bank of Ghana (BoG) is seeking to offer the digital currency to as many Ghanaians as possible. As such, the bank is exploring how to make the e-cedi available offline, a top official has revealed.
According to a report by Hootsuite and WeAreSocial, there are 41.7 million mobile connections in the country whose population stands just shy of 32 million, a 133 percent ratio. However, only about 15.7 million are connected to the Internet, just over half of the total population. While this number has grown by over 6 percent in the past year, Internet penetration is still a long shot from being universal in the country.
The BoG wants to offer the e-cedi to the one half of the population that’s not connected to the Internet, Kwame Oppong, the bank’s head of fintech and innovation revealed recently.
Speaking at the Ghana Economic Forum, Oppong stated, “Financial inclusion is limited by the availability of connectivity and power. What we hope to be able to do—and we’re one of the people pioneering this—is that the e-cedi would also be capable of being used in an offline environment through some smart cards.”
Offline access for CBDCs is a field that many central banks have been exploring as they seek to offer the digital currencies to the millions who are not connected to the internet. This segment of the population is one of the biggest targets of the CBDC rollout, with financial inclusion being one of the biggest benefits of a CBDC. But while this means Ghana is not exactly being innovative, the BoG is the pioneer in Africa with regards to floating a digital currency that can be used offline as well as online.
China has been exploring availing its digital yuan to offline users. The Bahamas has also taken major strides in this field, with its Sand Dollar being designed as a” full-proof solution to the all-too-common natural disasters that could disrupt Internet connectivity in the island nation. In February, the bank launched the first CBDC-linked debit card in the world.
In Ghana the use of loaded cards is already becoming quite commonplace with most commercial banks having launched their own respective locally used versions of debit cards in addition to serving as vendors for internationally accepted cards such as MasterCard and Visa Card.
But even more importantly, Ghanaians have embraced the use of smart phones for mobile money transactions, this now being the most popular mode for executing financial transactions even as the grass roots level.
All this suggests that Ghanaians will be willing to embrace an innovative new payments mode such as a card on which value can be loaded. The fact that the currency will be ultimately backed by the BoG itself rather than a commercial bank will make it all the more attractive in the wake of the huge n financial services industry melt down that occurred between 2017 and 2019.
However, as central banks pursue offline CBDC payments, a research paper by Visa warned that “without finding a secure solution, CBDCs could open themselves up to digital counterfeiting.” The global credit card behemoth proposed the Offline Payment System protocol that would prevent double spend by relying on digital signatures generated in the Trusted Execution Environments available on smartphones, even when offline.
For the BoG the main persuasion is the desire to pull its citizens away from trading in cryptocurrencies which, due to their volatility has lots of upside profit potential but equally large downside risk.
Even more importantly, the more cryptocurrency investment made in Ghana, the less control the BoG has over money supply and consequently the impact of its monetary policy.
Indeed the BoG has actively resisted the embracing of cryptocurrencies since they became popular worldwide. As far back as January 2019 it issued a public notice warning against such activity. It said:
The Bank of Ghana has taken notice of recent developments in the use, holding, and trading of virtual or digital currencies (also known as cryptocurrencies), such as Bitcoin in Ghana. The Bank of Ghana wishes to notify the general public that these activities in digital currency are currently not licensed under the Payments System Act 2003 (Act 662).The Bank of Ghana is currently investing a lot of resources to further enhance the payments and settlements system, including digital forms of money and also to introduce cyber security guidelines to safeguard electronic and online financial transactions. A revised Payments System Act referred to as Payment Systems and Services Bill will be considered by Parliament within the next couple of months. This revision should bring the electronic payments space up to date to international standards and aligned with the evolving electronic payments landscape. While the Bank of Ghana acknowledges the enormous potential in the blockchain technology and how that can significantly transform the payments system landscape and promote financial inclusion, we are assessing with stakeholders and other international partners how the subsequent use of the blockchain technology into digital currencies would fit into the global financial and payments architecture. The public is therefore strongly encouraged to do business with only institutions licensed by the Bank of Ghana to ensure that such transactions fall under our regulatory purview. For the avoidance of doubt, the public can always consult our website (www.bog.gov.gh) for a list of licensed banks and non-bank financial institutions in Ghana. The Bank of Ghana assures the general public of its continuous efforts to safeguard the stability and soundness of the financial sector.
Instructively these regulations have since been introduced but without creating legal space for cryptocurrencies trading and use as a form of payments in Ghana. However the Bank is willing to accept innovation with regards to financial products and services that use the underlying blockchain technology.
Indeed, BOG recently partnered with Emtech — a digital transformation consortium — to launch a sandbox targeting blockchain, central bank digital currencies (CBDCs) and financial inclusion.
The BoG has subsequently launched a fintech regulatory and innovation live testing pilot that will give preference to projects using blockchain technology.
According to the bank, the sandbox will cover a broad spectrum of innovations in the financial services sector, targeting women and improving financial inclusion in the country. The bank is on the lookout for remittance products, crowdfunding products and services, e-KYC (electronic know your customer) platforms and new merchant payment solutions for small to medium-sized businesses.
The sandbox will be available to banks, specialized deposit-taking institutions and payment service providers including dedicated electronic money issuers as well as unregulated entities.
Subsequently, EMTECH has launched a compliance platform in partnership with Microsoft that enables central banks to tackle compliance issues or safely test their central bank digital currencies (CBDCs).