The Central Bank of the Kingdom of Eswatini, the landlocked country of 1.2 million people sandwiched between South Africa and Mozambique, has released a design paper describing its potential central bank digital currency (CBDC), the digital lilangeni.
The digital lilangeni would be a tokenized retail CBDC run on a distributed database, rather than a distributed ledger. Blogger and CBDC consultant John Kiff recently took note of the design paper.
A CBDC tailored to Eswatini’s specific needs
The CBDC would have hosted online wallets managed by financial institutions and hard wallets, most likely in the form of a smart card, that could function in the absence of internet access, according to the design paper.
The digital lilangeni would be intermediated, with financial institutions distributing the currency to users using infrastructure operated by the central bank. The CBDC would feature pseudo-anonymity that would preserve privacy without compromising Know Your Customer and Anti-Money Laundering requirements.
Digital lilangeni payments would be programmable at the wallet level to enable automated payments or place restrictions on children’s spending, for example.
Two-tiered governance of the digital lilangeni. Source: Central Bank of Eswatini
Eswatini’s CBDC in context
Cash remains the dominant form of payment in Eswatini despite the central bank’s efforts to advance a “cash-lite” society and the growth of digital financial services like mobile money and bank cards. The central bank decided to phase out checks in 2022.
Interoperability will be a key issue for the digital lilangeni, which has to work within the existing electronic money framework and international standards. The lilangeni is pegged to the South African rand.
Source: IMF Capacity Development
The CBDC was designed in conjunction with Giesecke+Devrient using its Filia CBDC technology and has already been subjected to proof-of-concept and one sandboxed and one live pilot project. Staff training was a source of delay in the projects and would have to be addressed on a larger scale if the CBDC were to be implemented.
Related: Hong Kong’s e-HKD project expands into tokenization, programmability
The Eswatini CBDC proposal resembles Rwanda’s envisioned digital currency in several ways. Like Rwanda’s digital franc, the Eswatini CBDC would be token-based and operate on a distributed database, which the Rwandans expected to be more reliable than a blockchain.
In addition, the Rwandan and Eswatini CBDCs feature programmability, which while looked at with disfavor in the Global North, could provide advantages in less developed economies. In Kazakhstan, for example, programmable CBDC is seen as a tool to battle corruption.
Magazine: How the digital yuan could change the world… for better or worse