BoG moves to regulate cedi-backed stablecoins

The Bank of Ghana (BoG) is developing a dedicated framework for cedi-backed stablecoins that would require issuers to maintain fiat reserves with regulated financial institutions, opening a new digital payment layer for peer-to-peer transfers, programmable payments and atomic settlement.

Under the emerging arrangement, privately issued stablecoinsbacked by the Ghana cedi would be required to maintain backing assets equivalent to the tokens in circulation, with partner banks holding the fiat reserves in a structure similar to the float-account model used in Ghana’s mobile-money system.

The framework is also expected to specify the financial instruments that can qualify as reserve assets, with a substantial portion likely to be maintained in cash to provide sufficient liquidity when customers seek to redeem their tokens.

BoG sees stablecoins as a potential enabler of innovation in the financial system rather than a replacement for the cedi or existing forms of central-bank and commercial-bank money.

The central bank expects the technology to support on-chain and peer-to-peer payments, programmable transactions and atomic settlement, while creating opportunities for new financial products built around tokenized assets.

Stablecoin issuers would require banking partners to hold the fiat currency backing their tokens, drawing partly from the architecture already supporting mobile money, where electronic balances held by customers are backed by actual funds maintained with partner banks.

Banks would be permitted to provide settlement or reserve accounts for the underlying fiat assets, ensuring that digital tokens circulating outside conventional bank accounts remain backed by funds within the regulated financial system.

BoG expects stablecoins to maintain full backing, with the value of tokens in circulation matched by the corresponding fiat reserves. The central bank is also considering frequent reserve attestations, potentially on a monthly basis, alongside independent audits, with the final frequency to be specified under the regulatory framework.

The measures are intended to give users assurance that an issuer promising one cedi of underlying assets for every one cedi of stable coins in circulation actually maintains those reserves and has sufficient liquidity to meet redemptions.

Some backing could potentially be held in instruments such as Treasury bills, but maintaining sufficient cash would be important because holders must be able to redeem their stable coins when required.

Beyond providing another payment channel, BoG sees programmability as one of the features that could distinguish stablecoins from conventional electronic payments. Stablecoinsoperating on blockchain infrastructure can be programmed to execute transactions when predetermined conditions are satisfied, while supporting direct transfers between users.

They could also facilitate atomic settlement, where the transfer of an asset and the corresponding payment occur simultaneously. If either side of the transaction fails, the other side does not proceed.

The technology could become particularly useful as tokenization expands into other financial and physical assets. Tokenizing an asset such as gold, for instance, could allow it to be divided into smaller digital units, potentially giving investors who cannot afford an entire gold bar access to smaller portions of its value.

Stablecoins could also minimize intermediaries involved in traditional cross-border transfers. International bank payments typically pass through correspondent banks before reaching their destination, with transaction charges potentially arising at different stages.

Direct blockchain-based transfers could therefore shorten settlement periods and lower transaction costs, particularly for cross-border payments and remittances.

The opening for cedi-backed stablecoins will be accompanied by tighter controls on foreign-currency- backed tokens as BoGseeks to prevent digital assets from creating a parallel dollar-based payment system within the domestic economy.

The central bank is concerned that widespread use of dollar-backed stable coins such as USDT for everyday transactions could, in extreme cases, result in currency substitution, with consumers increasingly holding and transacting in digital dollars instead of the cedi.

BoG’s approach would prevent foreign-currency-backed stablecoins permitted in the country from becoming an alternative currency for domestic commerce. Goods and services cannot be priced or paid for in foreign-currency-backed stable coins, consistent with restrictions applying to the use of foreign currency in the domestic market.

The concern extends beyond the currency market to the banking system. If households and businesses increasingly hold savings in stablecoin wallets rather than bank deposits, part of the money that would ordinarily remain within banks could migrate outside the traditional deposit system, with implications for financial intermediation and the resources available for lending.

BoG is also concerned that stablecoins could accelerate capital flight during periods of financial stress, allowing movements that could take days through traditional banking channels to occur within hours.

The risk arises from the cross-border nature of stablecoins and their ability to move value without the chain of intermediaries involved in conventional transactions. BoG has pointed to concerns raised in international literature, including by the International Monetary Fund and Bank for International Settlements, over currency substitution and capital flight where such instruments are used at scale.

BoG therefore intends to align the treatment of foreign-currency-backed stable coins as closely as possible with Ghana’s existing foreign-exchange and capital-flow rules.

Using a stablecoin to transfer funds across borders will not exempt an individual or business from foreign-exchange requirements that would apply if the same transaction were conducted through the banking system.

Foreign stablecoin issuers seeking to offer their tokens in Ghana will also come under the country’s regulatory regime. The emerging approach is expected to require relevant foreign issuers to register and comply with local requirements, including disclosure and cooperation with Ghanaian authorities where transactions involving their tokens require investigation.

Reserve transparency will also be critical. Foreign issuers could be required to disclose where assets backing their stablecoins are held, the banks or financial institutions acting as custodians and the nature and liquidity of the backing assets.

Independent verification would provide assurance that the promised one-to-one relationship between tokens and reserves is being maintained, reducing the risk that consumers hold stablecoins they believe are fully backed when the corresponding reserve assets are not actually available.

BoG’s approach separates privately issued stable coins from the eCedi. The eCedi represents sovereign central-bank money that is the Ghana cedi in digital form while stable coins are privately issued digital money whose value depends on the assets backing them.

Central-bank and commercial-bank money are therefore expected to remain the core anchors for settlement. BoG’sobjective is to allow businesses and consumers to capture the payment and settlement benefits of stable coins without weakening the country’s existing monetary and foreign- exchange framework.

The cedi, including the eCedi where appropriate, would remain the core settlement asset, while privately issued stable coins would complement it mainly at the customer, transaction and innovation layers.