Eswatini in Africa proposes a CBDC plan that can store value with physical cards and support offline payments

The African Central Bank of Eswatini recently released the Digital Lilangeni report on Central Bank Digital Currency (CBDC). The digital currency will be pegged to the South African rand (ZAR) and aims to promote local payment convenience, financial inclusion, and increase the efficiency of cross-border payments with neighboring countries.

Digital Lilangeni will be pegged to the South African legal currency Rand (ZAR). This is part of Eswatini’s monetary policy because Eswatini participates in the Common Monetary Area of ​​Southern Africa (CMA), which includes South Africa, the Countries such as Watini, Lesotho and Namibia.

And because South Africa is the largest and most stable economy in the region, these countries have agreed to peg their exchange rates to the rand and allow member countries' legal currencies to circulate within the region. Therefore, Eswatini's legal currency, the Lilangeni (Lilangeni) and the ZAR, are fixed exchange rates.

By maintaining a stable exchange rate between the Digital Lilangeni and the Rand, Eswatini can increase the trust of the Digital Lilangeni, making it smoother for payments and cross-border transactions in the region, and more secure for the overall economy. .

CBDC designed for Eswatini’s needs

The plan states that Digital Lilangeni will be executed on a decentralized database in the form of CBDC. Digital Lilangeni can be used for peer-to-peer payments (P2P) and merchant payments, and plans to support micropayments and programmatic payment functions. It can be divided into two wallets, one is an online wallet managed by a financial institution, and the other is A hardware wallet called a smart card that supports offline payments.

Digital Rilangeni design overview:

• Two-tier structure: Digital Lilangeni is intermediary with financial institutions responsible for issuance and circulation, while the Central Bank of Eswatini provides infrastructure.
• Registration and issuance: During the registration process, the financial institution is responsible for issuing offline devices, such as smart cards, to users. These cards can be used for online payment, and the application scenarios include merchants’ POS machines and mobile phone sensor payment, allowing local users to conveniently use Digital Lilangeni to make transactions in their daily lives.
  
• Recharge and conversion: Before using Digital Lilangeni, you need to recharge with physical Lilangeni or bank deposits. The bank account can be connected to Digital Lilangeni's wallet, allowing users to flexibly switch between physical and digital funds.
  
• Convertibility: Maintain flexibility with the option to convert Digital Lilangeni into physical cash at any time.
  
• Pay offline

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CBDC design with privacy and functionality in mind, tested

Digital Lilangeni uses "pseudo-anonymity" to protect user privacy. While protecting privacy, it also complies with KYC and anti-money laundering laws and other requirements. In addition, Digital Lilangeni has a programmable function that allows users to automatically set payment purposes, and can also set settings for specific users, such as spending restrictions on children.

The report states that the Central Bank of Eswatini is currently working with technology company Giesecke+Devrient to develop Digital Lilangeni using Filia CBDC technology. At present, Digital Lilangeni has completed the proof of concept and has also conducted sandbox testing and real-life scenario testing.

Problems encountered with Digital Lilangeni promotion

• Time management: Because the two-tier architecture of CBDC requires a high degree of integration, it is difficult to accurately estimate the time required for the integration of various technologies.
• Early involvement of stakeholders: Stakeholders such as the Central Bank of Eswatini and financial institutions must participate in technical discussions at an early stage to build consensus.
• Insufficient professional manpower: There are insufficient professional and technical personnel who are familiar with CBDC and require a lot of training.

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Digital Lilangeni faces many challenges ahead

Although the Central Bank of Eswatini promotes the policy of "reducing the use of cash" and vigorously promotes methods such as mobile payment and bank card payment, local people still mainly pay in cash.

If Digital Lilangeni is to be widely accepted locally, it will need to overcome dependence on cash and get more people to switch to digital payments. Digital Lilangeni must also be compatible with existing electronic payment systems in order to be integrated into daily payment scenarios, otherwise the scope of application will be limited.