The E-Pula:Why Bank of Botswana Should Consider Issuing A Digital Currency

On Friday, the United States Federal Reserve issued a paper for the general public that sought to hear and gauge public opinion on the potential implementation of a "digital dollar", a move many experts view as the first step of the US central bank issuing a Central Bank Digital Currency(CBDC).

The US follows China in officially announcing the consideration of the issuance of a CBDC. China had announced the issuance of the "digital yuan" back in October 2019 and usage started last year April. Unlike their cryptocurrency peers which are decentralized, CBDCs are not based on blockchain technology which means that they are centralized— their issuance and regulation are handled by a country's monetary authority like a central bank.

CBDCs hold several advantages which should inspire Botswana's central bank, the Bank of Botswana, to consider one for issuance and use along with traditional money like notes and coins. First, they address the one issue that has pushed the bank to take the decision of not investing in cryptocurrencies—volatility. Unlike cryptos, CBDCs' value is not backed up by market speculation but by suitable monetary reserves such as a country's foreign reserves or gold which makes them way less volatile.

CBDCs are also are a good alternative to easily contaminable physical cash. The COVID-19 pandemic has shown the importance of having a medium of exchange that can limit person-to-person contact and hence transmission of any diseases and a digital currency like an "e-pula" would offer precisely this alternative. A CBDC would also work wonders in improving the proliferation of digital payments in the country which would go a long way in helping local businesses and individuals scale their operations by making cross-border transactions cheaper, convenient, and efficient.

Another critical advantage that stands to be gained from the issuance of a "digital Pula" is financial inclusion. With most of the population unbanked especially in rural areas, a digital currency would go a long way in ensuring that those people have access to financial services even without a bank account. It would also make it easier for government to disburse social welfare funds like old age pensions because it would eliminate the need for a third party to disburse the funds to the beneficiaries. 

A digital or e-pula would also significantly reduce the country's reliance on reserve currencies such as the US dollar by being able to bypass the SWIFT system which the US has in the past used to rein in states with "undesirable" elements. This would also in the process significantly reduce the cost of US transactions going forward which might prove to be a huge boost to economic activity.

With the world undergoing rapid digitalization and Botswana being pretty much left behind in this Fourth Industrial Revolution, the issuance of a digital pula would go a long way in helping the country make up the lost ground. There is without a doubt the need for the country to facilitate digital means of payment transactions and digital service delivery and the "e-pula" would go a long way in making this possible.

For the cryptocurrency community, the issuance of a CBDC like an "e-pula" would be understandably unwelcome as it defeats the whole purpose of cryptos which is wrestling control of a money market away from a central authority like the central bank.  However, because BoB's conservative stance when it comes to cryptos has been pretty much cemented, a CBDC seems like a starting point to eventually, someday, seeing the acceptance and adoption of blockchain-based and decentralized cryptos by the Bank. Also looking at the current state of cryptos with their volatility and environmental impact, it would appear that until those issues are resolved, a CBDC offers a much more stable alternative compared to the Wild-Wild West nature of cryptocurrencies. 

The fact that CBDCs are still a rudimentary concept among many countries should not mean that Botswana should rest on its laurels and wait on the world to hop on the trend before making its own efforts. The potential benefits of a digital currency for the country are there and that should be reason enough for the Bank of Botswana to at least invest R&D efforts into this. And because a CBDC would address the element of volatility that has keep the bank from looking into investing in or even issuing its own cryptocurrency, there seems to be no strong reason why an "e-pula" project cannot be pursued.