The Central Bank of the Kingdom of Eswatini, a landlocked nation with a population of approximately 1.2 million, situated between South Africa and Mozambique, has released a design paper outlining its proposed central bank digital currency (CBDC), known as the digital lilangeni. This initiative is part of the country’s broader efforts to modernize its financial system and adapt to the growing global trend of digital currencies.
Understanding the Digital Lilangeni
The digital lilangeni is conceptualized as a tokenized retail CBDC operating on a distributed database rather than a traditional distributed ledger. This distinction may influence the way the currency functions, offering a unique solution tailored to Eswatini’s specific needs. According to John Kiff, a blogger and CBDC consultant who recently commented on the design paper, the focus on a distributed database may enhance efficiency while addressing local challenges.
| Feature | Details |
|---|---|
| Currency Name | Digital Lilangeni |
| Type | Tokenized retail CBDC |
| Infrastructure | Distributed database (not blockchain) |
| Wallets | Online wallets managed by financial institutions; hard wallets (smart cards) |
| Intermediation | Financial institutions distribute currency through central bank infrastructure |
| Privacy Features | Pseudo-anonymity compliant with KYC and AML regulations |
The design paper outlines several critical features for the digital lilangeni. It proposes online wallets managed by financial institutions alongside hard wallets, likely in the form of smart cards. These hard wallets would allow users to transact without internet access, making the currency accessible in various conditions.
Furthermore, the digital lilangeni would be an intermediated currency. Financial institutions would be responsible for distributing the CBDC to users through infrastructure operated by the central bank. This approach aims to ensure a smooth transition from traditional cash transactions to digital payments.
Privacy and Programmability
One of the standout aspects of the digital lilangeni is its pseudo-anonymity feature. This characteristic allows users to maintain privacy while still adhering to Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Such a balance is crucial for fostering public trust in the digital currency.
The CBDC would also allow for programmability at the wallet level. This means users could automate payments or set restrictions on spending for specific purposes, such as parental controls for children’s expenditures. This programmability could significantly enhance user experience and financial management.
Despite the central bank’s efforts to encourage a “cash-lite” society and promote digital financial services like mobile money and bank cards, cash remains the dominant payment method in Eswatini. The central bank took significant steps in 2022 by phasing out checks, emphasizing its commitment to reducing reliance on cash transactions.
The digital lilangeni aims to address this challenge by providing a modern alternative that can facilitate digital payments while being inclusive of all segments of the population.
Interoperability is a crucial factor for the success of the digital lilangeni. Since the CBDC is pegged to the South African rand, it must integrate seamlessly with existing electronic money frameworks and adhere to international standards. This compatibility will be vital in ensuring that the digital lilangeni can be effectively used for domestic and cross-border transactions.
The design of the digital lilangeni has been developed in partnership with Giesecke+Devrient, utilizing its Filia CBDC technology. The project has already undergone proof-of-concept testing and has completed both a sandboxed and a live pilot project. However, staff training has emerged as a significant source of delays in the implementation process, which must be addressed on a larger scale before the CBDC can be fully rolled out.
| Project Stage | Details |
|---|---|
| Technology Partner | Giesecke+Devrient |
| Development Stages | Proof-of-concept, sandbox pilot, live pilot |
| Implementation Challenges | Staff training and education |
Comparisons with Other CBDC Initiatives
The proposal for the Eswatini CBDC shares similarities with Rwanda’s envisioned digital currency. Like Rwanda’s digital franc, the Eswatini CBDC is designed to be token-based and operates on a distributed database, which proponents argue is more reliable than a blockchain system.
Both the Rwandan and Eswatini CBDCs emphasize programmability, a feature that has been met with skepticism in more developed economies. However, this aspect could provide significant advantages in less developed regions, where the ability to customize and automate financial transactions can empower individuals and enhance economic stability. For instance, in Kazakhstan, a programmable CBDC is viewed as a potential tool for combating corruption.
The Central Bank of Eswatini’s design for the digital lilangeni represents a forward-thinking approach to integrating digital currencies into the national economy. By addressing the unique needs of its population and emphasizing features such as programmability and privacy, the digital lilangeni has the potential to transform the financial landscape in Eswatini.
As the project moves forward, attention will need to be paid to interoperability, regulatory compliance, and effective training to ensure successful implementation. By drawing on lessons from other countries and focusing on the specific challenges faced by its citizens, Eswatini aims to create a robust and inclusive digital currency that can meet the demands of the modern financial ecosystem.
Featured image credit: Allexxandar via Freepik
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