Kenya appears to be the latest country to officially express interest in developing a central bank digital currency (CBDC). Central bank officials have apparently been working with their peers in other countries, quietly and in the background, as they try to figure out the future of digital currencies in the East African nation. If and when they do issue a CBDC, the online gambling industry is bound to benefit.
CBDCs and online gambling are not necessarily thought of as being highly compatible. In fact, most discussions surrounding gambling and cryptocurrency relate to privately developed platforms like Bitcoin and Bitcoin Cash. Cryptocurrency purists tend to shy away from CBDCs because these lack the fundamental hallmark of a true crypto: decentralization.
Regardless how any of us feels about CBDCs as genuine cryptocurrencies, it is hard to argue against the possibility of them replacing cash at some point in the future. Businesses, including online gambling operations, are going to have to adapt. With that said, the online gambling industry stands to benefit quite a bit if Kenya does introduce a CBDC.
The industry should benefit in the following five ways:
1. A more stable economy
Decades of political turmoil and a lack of economic diversity have held the Kenyan economy in check for too long. Yet the nation's leaders have taken some pretty impressive steps in recent years to stabilize things. A CBDC could help further stabilize the economy and set it on solid footing for years to come.
This is not just the opinion of this writer. In an interview explaining the Central Bank of Kenya's interest in a CBDC, Central Bank of Kenya governor Dr. Patrick Njoroge mentioned economic stability as one of the key drivers.1 But just how would a CBDC further stabilize the economy?
Three of the things that have historically created instability in Kenya's economy are poverty, financial inequality, and a lack of private sector investment. A CBDC could address financial inequality by leveling the playing field between rich and poor. Address financial inequality and you give foreign investors reason to invest. That ultimately leads to a reduction in poverty.
A more stable Kenyan economy would make the country more attractive to offshore gambling operators looking to penetrate the market. Right now, instability and poverty do not create much of an incentive for operators to jump through the hoops necessary to enter Kenya. So they just don't.
2. Electronic payments
A nationwide CBDC recognized as legal tender would eliminate many of the payment issues that now prevent gambling operators from easily entering Kenya. Bear in mind that Kenyan citizens still rely heavily on cash and bartering to do business. Moreover, the country lacks the infrastructure necessary to facilitate widespread electronic payments. A CBDC would change that.
In order to develop a CBDC with genuine utility, Kenya's government would also have to approve developing the necessary infrastructure. The same infrastructure built to facilitate CBDC payments could also facilitate payments for private cryptocurrencies. As a bonus, it could even be used to facilitate electronic payments based in fiat.
The point is this: once the infrastructure is there, all sorts of electronic payments are possible. It doesn't matter whether a person wants to pay with a private cryptocurrency, a CBDC, or an electronic fiat format. The infrastructure works the same either way.
Electronic payments would be a big boost to the gambling sector. As things stand, online operators have very little choice but to accept electronic payments. They can accept paper checks and money orders - and some do - but the vast majority of online gambling payments occur electronically. Operators absolutely need this in Kenya if they hope to successfully penetrate the market.
3. The potential for cashless
Njoroge made it clear in his interview that Kenya is looking at developing a CBDC that will eventually replace cash completely. He acknowledges the country is still a long way off from that reality, but it is the reality, nonetheless. Kenya wants to do away with printed bills and minted coins. By the way, they are not alone. The whole world is moving in that direction.
At any rate, eliminating cash can only be a good thing for a country that is mostly rural. In the most rural areas, there are no banks. People cannot pay for things with credit cards, debit cards, etc. because they simply do not have access to them. Many don't even deal in cash because there is no safe way to store it. So what do they do? They barter for goods and services.
That is all well and good. Bartering has served humanity since the beginning of time. But it is a practice that doesn't help much if you want to access goods and services outside of your local area. Purchasing something from clear across the country becomes impossible if you do not have both cash and a way to electronically transfer it. A CBDC solves all these problems in one fell swoop.
How would the gambling industry benefit? By having access to the same people who may have cash but do not have any way to make a deposit electronically. Give them a CBDC and they can make a deposit right from their phones or computers.
4. Fighting money laundering
An aspect of CBDCs rarely spoken about is their potential to address money laundering. Right now, ill-gotten gains from criminal activity can be laundered fairly easily through fiat-based channels. It is especially easy when you are working only in cash. Cash is only traceable through serial numbers on bills. Unless government officials are tracking every single bill and every single serial number, they have no way of knowing how money flows through the laundering system.
Money-laundering is fairly easy with cryptocurrency as well, thanks to the pseudonymity it offers. Cryptocurrency ledgers track each and every coin, but personal information pertaining to the wallet owners is kept anonymous. Law enforcement agencies have to literally crack a crypto platform's encryption to get useful information from it.
All of that changes with a CBDC. Because a CBDC is not decentralized, anonymity is not a given. A central bank and its government allies could theoretically develop a CBDC that allows every coin to be tracked throughout its existence. Likewise, everyone who owned a particular coin during its life cycle could be discovered as well. Under the right circumstances, a CBDC could completely eliminate anonymity from the digital currency equation.
This doesn't sound like a good idea for the general public. Nonetheless, the mere fact that it is possible could give gambling operators a tool for accepting digital currency payments without having to risk the money laundering potential of private cryptocurrencies. Simply by accepting a CBDC but rejecting private coins, gambling operators hoping to penetrate Kenya could eliminate most of the money-laundering concerns they face.
5. Leveling the crypto playing field
Finally, a Kenyan a CBDC would level the crypto playing field in that country. If you are not sure what that means, understand that the disparity between Bitcoin and every other private cryptocurrency is as pronounced in Kenya as it is anywhere else in the world.
Bitcoin is the undisputed leader of private cryptocurrencies. Their closest competition is Ethereum, but even that is way behind in terms of market cap, daily trade volume, and price. The end result is that Bitcoin has a tremendous amount of influence over the entire crypto market, influence other cryptocurrencies do not have.
A CBDC would change this by giving citizens a cheaper but more stable entry point into the digital currency space. In theory, this could create less of a demand for BTC among consumers, investors, and merchants. BTC would suddenly be less valuable as an alternative currency and investment.
Gambling operators could potentially benefit by having opportunities to feed customers looking to spend the BTC they already have before moving on to the CBDC. They could further help their own cause by accepting BTC deposits but insisting that all digital currency withdrawals be made via the CBDC.
Significant potential is there
The point of this post has not been to assert that CBDCs are a good thing. We take no position on that. CBDCs are neither good nor bad as replacements for cash. They are simply an alternative to the printed bills and minted coins central banks already control. We also recognize the inevitability of CBDCs replacing cash in the future. Therefore, we have to look at the potential CBDCs offer.
Make no mistake, significant potential is there. In Kenya, most of the potential lies in overcoming the limits of the country's remote nature to give everyone equal access to financial markets. No one in Kenya should be economically disadvantaged because of the country's reliance on cash in an environment that doesn't support it very well.
The potential to level the playing field and stabilize Kenya's economy translates into potential for gambling operators. An economically stronger Kenya would mean more opportunities for operators. A Kenya with a rock-solid financial services infrastructure would answer the gambling industry's needs for electronic payments.
We wait to see where Kenya goes with a CBDC. For now, though, it seems that the Central Bank of Kenya is earnest in its desire to go digital. Their success in doing so should mean good things for a gambling industry that has been waiting to get into Kenya.