The Bank of Tanzania thinks CBDCs can destabilize their economy
The central bank of Tanzania has stated that it is still debating whether to deploy a central bank digital currency (CBDC) but that it will proceed with a “phased, cautious, and risk-based approach” after identifying a number of obstacles that might hinder its roll-out.
The Bank of Tanzania formed a multidisciplinary technical team to investigate the risks and advantages of CBDCs following its 2021 announcement on a potential CBDC launch, according to a public notice issued by the institution on January 14.
The bank disclosed that a study had been done by its team into the various kinds of CBDCs, methods for issuance and management, and whether or not its CBDC should be account-based or token-based.
In its investigation, the bank discovered that more than 100 nations are now implementing CBDC, with 88 at the research stage, 20 at the proof-of-concept level, 13 at the pilot stage, and 3 at the launch stage.
“Analysis of these findings indicate that majority of central bankers across the world have taken a cautionary approach in the CBDC implementation roadmap, in order to avoid any potential risks that can disrupt financial stability of their economies.”
The central bank noted that due to structural and technological difficulties during the implementation phase, at least four nations—Denmark, Japan, Ecuador, and Finland—publicly abandoned their plans to adopt CBDC. It added that six additional nations also abandoned their plans.
The prevalence of cash, ineffective payment systems, high implementation costs, and the possibility of upsetting the current ecosystem were a few difficulties the bank listed. Therefore, the team also focuses on the risks and safeguards related to its circulation, issuance, counterfeiting, and use of currencies.
The bank also stated that most central bankers had adopted a cautious stance in the CBDC implementation plan to prevent any potential risks that could undermine the financial stability of their countries.
The bank says it will “continue to monitor, research, and collaborate with stakeholders, including other central banks, in the efforts to arrive at a suitable and appropriate use and technology for issuance of Tanzanian shillings in digital form.” Still, it has yet to provide a specific deadline for when it will decide on CBDCs in Tanzania.
On November 26, 2021, Bank of Tanzania Governor Florens Luoga announced plans in Tanzania to expand research into digital currencies and improve the capabilities of central bank officials. This was in response to neighboring countries’ efforts to introduce CBDCs.
Following a November 2019 instruction from the Bank of Tanzania, the local law does not recognize digital assets, and cryptocurrencies are mainly prohibited in Tanzania.