Bank of Tanzania Takes Cautious Approach to Central Bank Digital Currency Adoption

• The Bank of Tanzania is researching the risks and benefits of Central Bank Digital Currencies (CBDCs).
• It has identified several challenges that could impact its implementation, including high implementation costs and the risk of disrupting the existing ecosystem.
• The Bank of Tanzania has taken a “phased, cautious and risk-based approach” to CBDC adoption and is waiting for the conclusion of its research before making a final decision.

The Bank of Tanzania has announced that it is taking a “phased, cautious and risk-based approach” to Central Bank Digital Currency (CBDC) adoption. This comes after the East African country formed a multidisciplinary technical team to explore the risks and benefits of CBDCs.

Since its 2021 announcement of a possible CBDC rollout, the Bank of Tanzania has conducted research looking into different types of CBDCs, models for issuance and management, and whether its CBDC should be token-based or account-based. The research revealed that over 100 nations around the world are at different stages of CBDC adoption, with 88 countries in the research phase, 20 in proof of concept, 13 in pilot and 3 in launch.

However, the team has also identified several challenges that could impact the implementation of CBDCs. These include high implementation costs, the dominance of cash, inefficient payment systems, and the risk of disrupting the existing ecosystem. In fact, at least four countries – Denmark, Japan, Ecuador and Finland – have publicly canceled their CBDC adoption plans, while another six have moved away from digital currencies due to structural and technological challenges in the implementation phase.

Due to this, the Bank of Tanzania has decided to take a “phased, cautious and risk-based approach” to CBDC adoption. It is currently waiting for the conclusion of its research before making a final decision.

The Bank of Tanzania believes that CBDCs have the potential to improve the efficiency of financial services and payments, as well as reduce the costs of financial inclusion. It also believes that a CBDC can help the country reach its long-term economic goals. However, it will not rush into a decision without taking the time to properly assess the risks.