The International Monetary Fund (IMF) has advised Namibia to focus on improving its existing payment systems before considering the introduction of a retail central bank digital currency (rCBDC).
In a recent report prepared for the Bank of Namibia (BoN), the IMF highlighted several challenges within the country’s current payment infrastructure, including high fees, limited interoperability, and restricted access for non-banks.
The IMF report also pointed to barriers to financial inclusion, such as inadequate digital infrastructure in rural areas, a preference for cash transactions, and low levels of financial literacy.
“The mission did not find a strong case for issuing rCBDC at present to address the gaps in the payment systems,” the IMF stated. They noted that existing initiatives like the Instant Payments Solution (IPS) are already designed to tackle issues of affordability and interoperability.
The IMF acknowledged Namibia’s ongoing efforts to modernize its payment systems through projects like NamPay and IPS, suggesting that these initiatives could address many of the same issues a rCBDC would aim to solve.
Regarding financial inclusion, the IMF argued that deeper structural challenges would still need to be addressed even with a rCBDC in place.
Furthermore, the IMF cautioned about potential risks to monetary policy and financial stability. They warned that a rCBDC could complicate the BoN’s liquidity management and increase volatility in short-term market rates. The report also raised concerns about potential “banking disintermediation,” where widespread adoption of a digital currency could lead to a shift away from traditional bank deposits.
The IMF recommended that Namibia establish a clear justification for a rCBDC before proceeding.
They urged the BoN to thoroughly assess the benefits and risks of a digital currency compared to other solutions, and to consult with stakeholders, including banks and policymakers, to determine the actual demand for digital payments.
The IMF concluded that addressing current payment system shortcomings is crucial, regardless of whether Namibia ultimately pursues a rCBDC.