Bank of Ghana lays out core design principles for CBDC pilot

Bank of Ghana diagram showing how CBDC is used by unbanked person
INCLUSION: The unbanked can receive a smart card with an offline wallet loaded with the digital eCedi

The Bank of Ghana (BOG) is to pilot a two-tier token-based retail central bank digital currency (CBDC) that can be used with either a digital wallet app managed by a financial institution or a physical hardware wallet such as a contactless smart card that can be used offline and by unbanked consumers.

BOG is developing the digital eCedi as a means of increasing the digitisation of the country’s economy, fostering financial inclusion, enhancing consumer adoption of digital payments, supporting the possibility of a more secure, efficient and resilient payment system, addressing the risk of unregulated privately issued digital currencies or virtual assets, and in anticipation of its own role “as a progressive regulator for facilitating the development of the digital economy”.

It lays out these strategic goals in a design paper for the digital eCedi and says that it has designed two types of wallet for its CBDC project: “hosted wallets managed by financial institutions and hardware wallets which are secure portable storage devices held by individuals. Hosted wallets require access to the internet while hardware wallets work in offline mode.”

Hardware wallet types

“The most optimal form factor for the eCedi wallet is the app for a smartphone developed by commercial banks, fintech companies and other service providers,” BOG says.

It adds that “other devices can be utilised depending on user preferences and payment scenarios. These could be smart cards (including biometric ones) or wearables such as smartwatches that contain communication capabilities and a secure element. Similarly, debit cards and USSD devices (feature phones) which are associated with the existing payment landscape in Ghana can be adapted for eCedi.

“Thus users can get the type of wallet that suits their needs from a bank or other financial service provider.”

An unbanked consumer without a smartphone, for example, could visit a bank or other authorised institution and be issued with a smart card that can be loaded with eCedi at the bank or via P2P transfer, the bank explains.

“Thereafter, this consumer is able to purchase goods and services (in person) or instantly transfer the eCedi to other consumers (face to face).

“Redemption of the eCedi to Cedi is available at any time.”

Financial inclusion

BOG is developing CBDC hardware wallets because “the eCedi should work effectively both online and offline” and says that its “conceptual similarity with cash makes offline (no internet) transactions highly relevant”.

“Another argument in favour of offline capabilities is the financial inclusion goal,” the bank adds.

“For Ghana, it definitely makes much sense to provide a retail CBDC capable of functioning in rural areas without internet access to ensure countrywide access and accelerate financial inclusion.

“From a perspective of technology, it is feasible to implement an offline eCedi with a smart card (potentially, with a smartphone) using standard interfaces like NFC or Bluetooth.

“Transactions for offline payments are therefore instantly settled without accessing a backend system.”

BOG is now inviting feedback on the principles laid out in its design paper from consumers, banks, fintechs and academics.

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