Understanding CBDC Infrastructure: A Framework for Ethiopia
Central Bank Digital Currencies (CBDCs) represent one of the most significant developments in monetary infrastructure since the introduction of electronic payments. For Ethiopia, with its unique combination of large population, growing digital adoption, and ambitious national digitization goals, understanding CBDC infrastructure is essential.
What is a CBDC?
A Central Bank Digital Currency is a digital form of a country's fiat currency, issued and regulated by the central bank. Unlike cryptocurrencies, CBDCs are:
- Centrally issued: Only the central bank can create and destroy CBDC units
- Legal tender: CBDCs have the same legal status as physical currency
- Stable value: CBDCs maintain a 1:1 peg with the physical currency
Key Design Considerations for Ethiopia
1. Two-Tier vs. Direct Distribution
Most CBDC implementations favor a two-tier model where the central bank issues the CBDC to commercial banks, who then distribute it to citizens. This approach:
- Leverages existing banking infrastructure
- Maintains the role of commercial banks
- Reduces central bank operational burden
2. Offline Functionality
For Ethiopia, where significant portions of the population live in areas with limited connectivity, offline transaction capability is crucial. This requires:
- Secure local storage on devices
- Deferred settlement protocols
- Risk management for offline limits
3. Financial Inclusion
A well-designed CBDC can significantly advance financial inclusion by:
- Reducing the cost of basic payment services
- Enabling access without traditional bank accounts
- Supporting government-to-person payments
Alignment with National Strategy
Ethiopia's National Digital Payment Strategy 2026-2030, particularly Action 78, explicitly calls for CBDC exploration. Any infrastructure development must align with:
- National Bank of Ethiopia regulatory framework
- Digital Ethiopia 2030 objectives
- Existing payment system interoperability requirements
Conclusion
CBDC infrastructure for Ethiopia requires careful consideration of local context, technical requirements, and policy objectives. Success depends on building systems that serve national interests while enabling future innovation.