Money does not really exist, it is merely symbolic. This is why digital cash has been inevitable as technology has progressed. Money, experts are keen to remind us, is a moral concept constructed by society and given value to facilitate exchange of goods and services. For this reason, coins and banknotes are only symbolic. Digital cash is only the next step, of which mobile money is one form. Other forms are cryptocurrencies and the idea gaining momentum around the world of central bank digital currency (CBDC). China is already rolling out trials of its CBDC, the Digital Yuan. Meanwhile, the United States and elsewhere, including Rwanda and countries around Africa, are researching the impact their central bank digital currencies might have on their economies. This was to be expected, especially with the rise in popularity of cryptocurrencies and the realisation of the usefulness of the blockchain technology underlying it. However, cryptocurrencies have been a cause of concern. One issue is that they are private; anybody can launch their own. There are currently more than 4000 cryptocurrencies. Another issue is that they are encrypted, making it easier to hide shady money transactions, while their mining has impact on climate change. They are also speculative and therefore highly volatile. In April, for instance, Bitcoin was trading at $65,000, a massive spike of 450 per cent in just six months. Since then, its price has taken a tumble and is trading below $30,000 as I write. Most places won’t accept them, while transactions are often slow and expensive. Thus the movement towards CBDC, of which mobile money offers an illustrative point. Being a way of life in our part of the world, it seems unnecessary to restate the conveniences mobile money offers: You can send money or pay with it at the supermarket, or withdraw ready cash from a mobile money agent. The only problem is that it entails a cost. To effect a transaction, the mobile network operator, MTN, say, or your bank has to verify whether you have cash in your account and whether the person you are sending to can receive it. The mobile network operator or bank play the role of middleman and charge a fee for this service. The CBDC promises to do away with all this. It will remove the middleman, thereby doing away with the cost of transactions. And, unlike the cryptocurrencies, the CBDC will be stable. Backed and guaranteed by the central bank, the CBDC will operate like physical cash. Let us assume the local CBDC will be called the Digital Rwandan Francs – the DRF, let’s call it. 1,000 DRF will be equal to RwF 1,000 cash. It will have the same intrinsic value as a banknote, the way you don’t verify with the bank each time you hold physical money in your hand. But if that’s the case, one might ask, what will be the difference with mobile money? The difference is that you will not need your network operator, or even the internet. With Near Field Communication (NFT) technology, which allows direct communication between devices, as happens when you put your phone near a cash register at some supermarkets, it will theoretically be possible to exchange Digital Rwandan Francs for goods and services without internet. The internet will nonetheless be crucial, as a record of the transaction will be stored in a “distributed ledger” to reinforce security through blockchain technology. This could happen when the internet is back. Aside from the ongoing research, the rollout of the Digital Yuan in China is therefore being closely watched to see what lessons could be learnt. But it is the Digital Dollar, as America’s CBDC will be called, that will be more keenly watched. With the US dollar being a global currency, there are legitimate concerns about the impact the Digital Dollar might have on other CBDCs. If it were to be the preferred digital currency, it could erode the buying power of other CBDCs and undermine other countries’ central banks’ ability to manage their own money supply. This, however, including the question of privacy of transactions, is the subject of research by the US Federal Reserve, as with the ongoing research elsewhere.
