Egypt is Working Towards e-pound CBDC by 2030 

One of the primary strategic goals for the Egyptian economy from 2024 to 2030 is the introduction of the e-pound by the Central Bank of Egypt (CBE), according to research by the Information and Decision Support Centre (IDSC).

A more competitive national currency and more effective monetary policy are anticipated with the introduction of the digital currency. Achieving a 100% financial inclusion rate by 2030 is another lofty goal that the Egyptian government has set.

A road map for economic development in the upcoming years is provided by the IDSC’s publication of a document titled “The Most Prominent Strategic Directions of the Egyptian Economy for the New Presidential Period 2024-2030,” which outlines important policy objectives.

In this piece, we will look into the effects and impacts of the CBDC in Egypt.

What are Central Bank Digital Currencies (CBDC) and how do they work?

The digital representations of a nation’s currency that it issues and guarantees under the control of the central bank are the Central Bank Digital Currencies, or CBDCs. They are comparable to traditional fiat currencies, but instead of using real money, transactions are digital through a blockchain or other related technology.

Digital wallets or accounts in which commercial banks control and operate, the central bank, or other organizations are what the CBDCs use to do business. Similar to online banking or mobile payment apps, digital wallets use CBDCs to store and transfer.

The establishment of CBDCs by numerous nations is a result of their desire to offer more dependable digital currencies that are acceptable as legal currency.

• The Bahamas was the first to establish a national CBDC called ‘Sand Dollar’.
• Nigeria is another country that launched eNaira in 2020.
• In April 2020, China became the world’s first major economy to test a digital currency, e-CNY.
• Egypt intends to launch their CBDC in 2030

In a CBDC system, transactions occur without the assistance of middlemen like payment processors or commercial banks. This could increase efficiency and reduce transaction costs.

Because anyone with a digital wallet can use them, regardless of location or access to traditional banking services, CBDCs can also encourage broader financial inclusion.

Types of CBDC

There are generally three types of Central Bank Digital Currencies (CBDCs) that exist. They include:

1. Retail CBDC

This type of CBDC is comparable to conventional cash in that it is intended for general public use and can be used to make instant purchases. Retail CBDCs can be accessed using digital wallets that are managed by the central bank or approved intermediaries.

2. Wholesale CBDC

Banks and payment processors, among other financial institutions, are intended to use wholesale CBDCs for interbank settlements and transactions. In addition to lowering the chance of settlement failures, they can increase financial system efficiency.

3. Hybrid CBDC

The characteristics of retail and wholesale CBDCs are combined in this kind of CBDC. By facilitating both consumer transactions and interbank settlements, hybrid CBDCs have the potential to improve the efficiency and integration of the financial system.

Goals of CBDCs

Many people in the United States and many other countries lack access to financial services. In 2020, 5% of adults in the United States alone lacked a bank account. A further 13% of adult Americans with bank accounts instead made use of pricey third-party services like check cashing, payday loans, and money orders.

Offering consumers and businesses privacy, transferability, accessibility, convenience, and financial security is the primary objective of CBDCs. 

Additionally, CBDCs could minimise cross-border transaction costs, lessen the maintenance expenses associated with maintaining a complex financial system, and offer more affordable options to those who currently utilise other money-transfer services.

Additionally, the hazards connected with using cryptocurrencies, or digital currencies, in their current form would be decreased by CBDCs. The value of cryptocurrencies is always changing, making them extremely volatile. A nation’s overall economic stability may be impacted by this volatility, which might put many households under extreme financial strain. 

With the support of the government and under the supervision of a central bank, CBDCs would provide a safe way for individuals, companies, and consumers to exchange digital currency.

Issues CBDCs Address and Create

Critical requirements that a CBDC must meet have been outlined by the Federal Reserve, along with issues that must be resolved prior to the design and implementation of one.

The Issues Addressed By CBDCs

• Free from credit and liquidity risk
• Lowers cross-border payment costs
• Supports the international role of the dollar
• Aims for financial inclusion
• Expands access to the general public

Issues Created by CBDCs

• Financial structure changes
• Financial system stability
• Monetary policy influence
• Privacy and protection
• Cybersecurity

The Issues Addressed By CBDCs Explained

• Removes the possibility of occurrences like bank runs or defaults impacting third parties. The central bank bears the responsibility for any remaining residual risk in the system.
• Can cut expensive cross-border transaction costs by simplifying distribution networks and fostering greater government collaboration across jurisdictions.
• Upholds and defends the dominance of the US dollar, which is still the most widely used currency worldwide.
• Eliminates the expense of setting up a banking system in a nation to give the unbanked populace access to money.
• Can create a direct line of communication between customers and central banks, doing away with the requirement for pricey infrastructure.

Issues Created by CBDCs Explained

• It is unclear how a significant shift in the U.S. financial system would impact the economy, banking reserves, household spending, investments, interest rates, and the financial services industry.
• It is also unknown what impact a move to CBDC will have on the stability of the financial system. In the event of a financial crisis, for instance, there could not be sufficient central bank liquidity to enable withdrawals.
• Monetary policy is implemented by central banks to effect lending, expenditure, interest rates, and inflation, all of which have an impact on employment rates. Central banks need to make sure they have the resources necessary to have a good effect on the economy.
• One of the main motivations for cryptocurrencies is privacy. To monitor for financial crimes, CBDCs would need to encroach on legitimate government territory. Monitoring is crucial since it helps fight money laundering and the funding of terrorists.
• Hackers and thieves have targeted cryptocurrencies. The same group of thieves are probably drawn to digital currency issued by a central bank. Thus, there would need to be significant efforts made to stop system infiltration and asset and information theft.

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Is CBDC different from crypto assets (also known as cryptocurrency)? 

You may be familiar with XRP, Ether (Ethereum), and Bitcoin. These are a few instances of digital assets that are private; they are cryptocurrencies or crypto assets. There are some key distinctions between CBDC and crypto assets.

To begin with, crypto assets are private, and in the event that a crypto asset has difficulties, neither the government nor the central bank may intervene. 

Second, a crypto asset’s value is erratic. In a very short amount of time, it can rise or fall rapidly. It is not optimal to do this when paying. Digital pounds would be stable and hold their worth over time if we were to issue them.

The advent of CBDCs in Africa

The Central Bank Digital Currencies (CBDC) have drawn attention as a potential game-changer as the global financial landscape changes.

But throughout Africa, the uptake of CBDC has been slow, with Nigeria being the only country to have introduced its virtual currency first.

Nigeria made a daring move by introducing the eNaira, its CBDC, to increase financial inclusion and lower transaction costs. The countrywide uptake of CBDC has been slow in spite of this development.

The delayed uptake can be attributed to several causes. The public’s ignorance and cynicism rank first and second, respectively. Many consumers still don’t understand digital currencies or don’t perceive any advantages at all. This makes them reluctant to switch to using traditional cash transactions.

Despite these hurdles, Egypt is prepared to follow in Nigeria’s footsteps by implementing its own CBDC. Confidence is likely to increase as additional nations take note of Nigeria’s experience with digital money.

Nonetheless, it’s critical to use greater caution when deciding why to introduce CBDCs. A nation should take up the endeavor for its own intrinsic worth and advantages, not only to appear hip and fashionable.

CBDC in Egypt

Egypt, a country in North Africa, is moving forward with its Central Bank Digital Currency (CBDC) initiative, which is scheduled to begin in 2030, according to sources.

The Egyptian press has reported that the e-pound, which would essentially be the digital currency of the Central Bank of Egypt (CBE), will increase the value of Egypt’s national currency and improve the effectiveness of monetary policy.

A type of digital currency issued by a nation’s central bank is known as central bank digital currencies, or CBDCs. They resemble cryptocurrencies, but they are equivalent to the nation’s fiat currency and have a fixed value set by the central bank.

The October 2021 introduction of Nigeria’s eNaira serves as an illustration of a CBDC. Nigeria’s CBDC has seen little growth and an unimpressive reaction from the populace.

The Egyptian Council of Ministers’ Information and Decision Support Centre in studying “The Document on the Most Important Strategic Directions of the Egyptian Economy for the New Presidential Period (2024–2030).” The policies for the Egyptian economy up to 2030 are in this project, with an emphasis on social and economic trends.

The Goal of Adoption in Egypt in 2030

The goal of the 2030 adoption of the digital pound (E-Pound) is to increase the national currency’s competitiveness and monetary policy’s effectiveness. The action is a component of utilising the potential that the digital transformation offers to develop the Egyptian financial industry and improve the efficiency of monetary policy.

The Egyptian government wants to reach about 80 million digital financial wallets by 2030. This is one of their goals. The overarching objective of promoting digital financial inclusion and increasing the nation’s use of digital financial services is in line with this endeavour.

Abdel Moneim al-Sayed, the director of the Cairo Centre for Economic and Strategic Studies, stressed the importance of the digital pound in the wake of the Central Bank of Egypt’s recent statement of its impending release. He declared that the electronic equivalent of the traditional paper pound would be the digital pound.

The digital pound is exchanged via electronic payment systems, which aligns with the government’s goal of adopting digital transformation.

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The Budget Unity Strategy

Egypt also wants to develop a unified and comprehensive budget and move towards digital transformation through the adoption of performance budgeting and programmes. 

The purpose is to enhance the effectiveness of government spending and make reforms in economic agencies to promote robust governance.

The director of the Cairo Centre for Economic and Strategic Studies, Abdel Moneim al-Sayed, stressed the importance of the digital pound. 

He explained that it would be used to transact through the electronic payment system and function as the electronic equivalent of the conventional paper pound. 

This measure is in line with the country’s overarching objective of going digital and minimising the use of paper money transactions.

Dr. Mostafa Madbouly, the prime minister of Egypt, stated:

“[This] comprehensive research project has been prepared outlining a set of economic directions for the upcoming period, taking into account the variables of global conditions and sustainable development trends. The government considers involving experts and specialists in shaping public policies a vital necessity to harness the maximum benefit from the available national minds and expertise in all sectors and specialisations.“

What will Egypt Benefit from Working Towards e-pound CBDC? 

1. Enhanced transaction efficiency:

By streamlining payment processes and cutting down on settlement times, the Egypt CBDCs will make transactions easier to complete quickly and conveniently.

2. Improved financial inclusion:

People and companies who are presently underserved by traditional banks will have easier access to financial services in Egypt, thanks to CBDCs.

3. Improved monetary policy control:

Central banks in Egypt will be able to better regulate inflation, interest rates, and other macroeconomic variables with the aid of CBDCs.

4. Lower costs for the central bank: 

The cost of creating and issuing physical currency as well as the requirement for middlemen in payment systems will be decreased in Egypt by CBDCs.

5. Enhanced security and privacy for users:

By offering more private and secure payment methods, CBDC in Egypt will lower the risk of fraud and identity theft.

6. Possibility to accelerate economic growth:

By facilitating quicker and more effective payments, CBDCs in Egypt will be able to boost economic activity and expansion.

7. Cross-border transaction facilitation:

y eliminating the need for middlemen and foreign exchange conversions, CBDCs will make doing business internationally simpler and less expensive.

8. Decrease in criminal activity: 

Since all transactions will be traceable and documented, CBDCs will lessen the incidence of unlawful activities like tax evasion and money laundering.

9. Simplifying tax collection: 

Since all transactions will be tracked and documented, CBDCs will make the tax collection process simpler.

10. Integration with other cutting-edge technologies: 

By integrating CBDCs with other cutting-edge technologies like blockchain and smart contracts, new use cases and applications will be made possible in Egypt.

What Possible SetBacks Can Egypt Encounter with the CBDC?

• Possibility of financial disintermediation: 

By eliminating the need for conventional financial intermediaries like banks, CBDCs may cause employment losses and a decline in overall economic activity.

• Risk of bank runs and financial system instability: 

A sharp increase in demand for CBDCs could result in a bank run and perhaps cause the financial system to become unstable.

• Infrastructure and technology investment required: 

The adoption of CBDCs would necessitate a large investment in technological infrastructure, which would pose a serious challenge for certain nations.

• Cyberattack susceptibility: 

Like any digital system, CBDCs are susceptible to hacking attempts and cyberattacks.

• Risk of violating user privacy and establishing a surveillance state: 

The CBDC system’s architecture may make it possible for user privacy to be violated or for the system to be used for surveillance.

• Difficulty implementing cross-border transactions: 

The challenges of harmonising regulations between nations and facilitating cross-border transactions may impede the adoption of CBDCs.

• Potential to worsen income inequality: 

If CBDCs are not allocated fairly, they may make the already-existing income disparity in society worse.

• Absence of backup funds in the form of physical currency: 

CBDCs would only rely on digital infrastructure, which is susceptible to disturbances like power outages.

Central Bank Digital Currencies at a Glance

Numerous nations’ central banks are doing research and implementing pilot programmes to ascertain whether a CBDC is practical and useful for their respective economies. 

There were 11 nations and territories with CBDCs as of March 2023. The nations in question include Nigeria, Grenada, Dominica, Saint Lucia, Antigua and Barbuda, St. Kitts and Nevis, Monserrat, and Dominica. 

Thirteen of the G20 economies are among the eighteen countries that currently have a pilot programme in place, while another eighteen are developing one. The Federal Reserve reports that the United States is among the nations investigating the possibility that a CBDC “could improve on an already safe and efficient U.S. domestic payments system.”

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Frequently Asked Questions 

Is CBDC a Cryptocurrency?

CBDCs are not cryptocurrencies, despite the fact that the concept for central bank digital currency originated with cryptocurrencies and blockchain technology. While cryptocurrencies are nearly always decentralised and cannot be governed by a single entity like a bank, central banks oversee CBDCs.

Does the U.S. Have a CBDC?

The US CBDC does not exist. The creation of a national digital currency plan has been mandated by President Joe Biden, and the Federal Reserve and its branches are investigating CBDCs and potential ways to integrate them into the American financial system.

Is a CBDC Based on a Blockchain?

A blockchain can serve as the foundation for a CBDC, but it’s not required. According to studies conducted by the Digital Currency Initiative at MIT and the Federal Reserve Bank of Boston, distributed ledgers may make a CBDC less scalable and efficient.

Can I buy central bank digital currency?

Users will be able to conduct transactions with e- R using a digital wallet which some banks offer. Similar to cash, the CBDC will not bear interest and can be exchanged for other kinds of payment like bank deposits.

Who would benefit from CBDC?

Banks would be able to make payments more quickly and automatically if CBDCs were used. The speed and dependability of cross-border transactions may also increase.

How many countries are using CBDC?

As of now, a total of three countries have launched CBDC- China, Nigeria, and the Bahamas. India has currently started using digital currency in the wholesale sector (e₹-W).

Will Egypt be able to acquire the e-pound CBDC?

Egypt’s proposal is made at a time when global central banks are attempting to create digital currencies that are under state control. 

Nine nations have started implementing these, and 87 more, accounting for more than 90% of the world’s GDP, are considering doing the same. 

A new proposal for a continental cryptocurrency suggests that the days of cash may be coming to an end in Africa, where central banks are beginning to see the appeal of regulated digital currencies. 

More so, in Africa—a continent that leads the world in digital payments—CBDCs offer yet another fintech breakthrough.