The Central Bank of the Kingdom of Eswatini has released a detailed design paper for its potential central bank digital currency (CBDC), known as the digital lilangeni. Eswatini, a small African nation bordered by South Africa and Mozambique, with a population of 1.2 million, is exploring the creation of a tokenized retail CBDC that could transform its financial landscape.

Designing a CBDC Tailored to Eswatini’s Needs

The proposed digital lilangeni would operate on a distributed database, rather than a distributed ledger like blockchain, and would be intermediated by financial institutions. According to the design paper, users would have access to both online wallets, managed by financial institutions, and hard wallets, likely in the form of smart cards. These hard wallets would allow offline transactions, enabling payments even in areas without internet access.

The CBDC aims to balance privacy and security with features like pseudo-anonymity, ensuring user privacy without compromising regulatory requirements like Know Your Customer (KYC) and Anti-Money Laundering (AML) laws. The digital currency would also offer programmable payments at the wallet level, allowing users to automate payments or place restrictions, such as controlling children’s spending.

Governance and Integration Challenges

Eswatini’s CBDC project faces significant hurdles in integrating with existing payment systems. Cash remains the dominant payment method in the country, despite the central bank’s efforts to promote a “cash-lite” society. While digital financial services like mobile money and bank cards have seen growth, Eswatini only phased out checks in 2022. The digital lilangeni must be interoperable with the South African rand, to which it is pegged, and function within both Eswatini’s electronic money framework and international financial standards.

The central bank is working closely with Giesecke+Devrient, a firm specializing in CBDC solutions, to develop the digital lilangeni using its Filia CBDC technology. Proof-of-concept testing, along with sandboxed and live pilot projects, have already been conducted, though staff training posed delays in the process. If the CBDC is to be successfully implemented, addressing these training challenges on a larger scale will be crucial.

A Broader African Trend Toward CBDCs

Eswatini’s digital currency initiative is part of a larger trend across Africa. Its proposal mirrors that of Rwanda’s planned digital franc, which is also token-based and runs on a distributed database rather than blockchain. Both countries see the programmability of CBDCs as an advantage, particularly for developing economies. For instance, Kazakhstan is exploring programmable CBDCs as a tool to combat corruption, a feature that has been less favored in more developed economies.

While still in the early stages, Eswatini’s exploration of a tokenized CBDC signals its commitment to modernizing its financial system and promoting greater financial inclusion in a cash-dominated economy.