Eswatini Unveils Tokenised Retail CBDC Design: Step to Modernisation

The Kingdom of Eswatini, a small landlocked nation in southern Africa, is making significant strides toward financial modernisation by releasing its tokenised retail Central Bank Digital Currency (CBDC) design. 

Overview

The digital Lilangeni will function as a tokenised retail CBDC, operating on a distributed database rather than a distributed ledger. This distinction was recently highlighted by blogger and CBDC consultant John Kiff, who commented on the design paper. The digital Lilangeni suggested that it will be intermediated with financial institutions responsible for distributing the currency to users via infrastructure managed by the central bank. It will incorporate pseudo-anonymity, ensuring user privacy while meeting Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. The move is a testament to the growing adoption of digital currencies across Africa and the world, aimed at improving financial inclusion and strengthening the domestic financial ecosystem. The Central Bank of Eswatini mentioned the two-tiered governance of the digital Lilangeni.

The Vision Behind Eswatini’s Tokenised CBDC

The Central Bank of Eswatini (CBE) has been exploring possibly introducing a CBDC for several years. The motivation for developing a tokenised retail CBDC stems from the country’s desire to enhance its payment systems’ efficiency, security, and inclusivity. With a population that faces significant barriers to accessing traditional banking services, the CBDC presents an opportunity to bridge the financial divide and bring more citizens into the formal economy. Eswatini’s CBDC initiative aligns with the broader global trend of central banks considering or actively developing digital currencies to address evolving financial needs. However, Eswatini’s approach is unique in emphasising a tokenised model for retail purposes. 

In this context, tokenisation refers to representing the value of the CBDC through digital tokens that can be easily transferred and exchanged between users. The CBE’s strategic goal is to build a financial infrastructure that is secure, efficient, and accessible to the country’s largely unbanked population. By introducing a retail-focused CBDC, Eswatini aims to lower transaction costs, reduce reliance on physical cash, and promote greater economic participation across all segments of society. Deputy Governor of the Central Bank of Eswatini, Felicia Dlamini, said, “It is critical that financial stability is anchored on robust legal, regulatory, supervisory, and resolution frameworks informed by sound data collection, analysis, and reporting.”

Key Features of the CBDC Design

Eswatini’s tokenised retail CBDC is designed with several key features to ensure a seamless user experience and strong financial security. The central bank will back the digital currency, meaning its value will be directly tied to the national currency, the Swazi lilangeni. This ensures stability and trust in the currency, as it will function as a legal tender alongside cash and other forms of electronic payments. One of the CBDC’s most important features is its focus on accessibility. The tokenised CBDC will be designed to operate on smartphones and feature phones, ensuring that people without access to modern smartphones can still participate in the digital economy. This feature is crucial, given that many of Eswatini’s population still rely on essential mobile devices for communication and financial services. 

The CBDC will also have offline functionality, allowing users to transact even in areas with limited or no internet connectivity. This is particularly important in rural regions, where access to stable internet infrastructure is still challenging. By enabling offline transactions, the CBDC can reach more people and facilitate greater financial inclusion in the country. From a security standpoint, the CBDC will incorporate advanced encryption and tokenisation protocols to prevent fraud and cyberattacks. Using blockchain or distributed ledger technology (DLT) could provide additional security, transparency, and immutability to the system, ensuring that transactions are securely recorded and easily auditable.

Challenges and Potential Impact on Eswatini’s Economy

While the tokenised retail CBDC offers numerous benefits, it also presents several challenges that Eswatini must address. One of the main concerns is the need for robust regulatory frameworks to govern its use. Ensuring the currency is not used for illicit activities, such as money laundering or terrorist financing, will require close coordination between the CBE, law enforcement agencies, and international regulatory bodies. Another potential challenge is ensuring that the CBDC is seamlessly integrated into the existing financial system. Eswatini’s banking infrastructure could be more developed compared to larger economies, and introducing a digital currency could strain the capacities of financial institutions and payment service providers. 

To mitigate this risk, the CBE may need to upgrade the nation’s digital infrastructure and support local banks and fintech companies to facilitate the transition. Regarding economic impact, the CBDC can significantly improve financial inclusion in Eswatini. By offering an accessible and cost-effective payment solution, the CBDC could help bring millions of unbanked citizens into the formal economy. This could stimulate economic growth by increasing the velocity of money within the domestic market and boosting consumption. Moreover, the CBDC could provide a valuable tool for the CBE to implement monetary policy more effectively. For example, the central bank could use digital currency to directly distribute financial aid or subsidies to citizens during times of crisis, bypassing the need for intermediaries and reducing the risk of delays or mismanagement.

Eswatini’s release of the design for its tokenised retail CBDC marks a significant step towards modernising the country’s financial landscape. With a focus on inclusivity, security, and efficiency, the CBDC has the potential to transform the way citizens engage with the economy, particularly those who have historically been excluded from traditional banking services. However, the successful implementation of the CBDC will depend on the country’s ability to address regulatory, infrastructural, and integration challenges. If these hurdles are overcome, Eswatini could serve as a model for other African nations looking to embrace digital currencies and promote financial inclusion.