Can Digital Currencies Transform Southern Africa? IMF Reveals Key Risks and Reform Priorities

An IMF report warns that regulatory barriers, liquidity shortages and inefficient banking systems are slowing cross-border payments in Southern Africa, while digital currencies could improve settlement efficiency and financial inclusion. The IMF recommends eight reforms, emphasizing stronger regulations, institutional capacity, regional cooperation and private-sector participation before adopting wholesale digital currencies.

The International Monetary Fund (IMF) has warned that regulatory barriers, liquidity shortages, inefficient banking systems and limited financial market access could slow Southern Africa's efforts to modernize cross-border payments through central bank digital currencies (CBDCs). In its October 2026 report, Common Monetary Area: Project Sunbird and Cross-Border Payments with CBDC, the IMF's Monetary and Capital Markets Department, Information Technology Department and Corporate Services and Facilities Department examine how Eswatini, Lesotho, Namibia and South Africa could improve regional financial transactions. The findings highlight opportunities for governments, international development partners, commercial banks and financial technology companies to reduce payment costs, strengthen financial inclusion and support economic growth.

The four countries form the Common Monetary Area (CMA), where the currencies of Eswatini, Lesotho and Namibia are pegged one-to-one to the South African rand. Despite these close monetary relationships, businesses and households continue to face payment delays, complex regulations and dependence on intermediary banks. Through Project Sunbird, the four central banks are exploring wholesale CBDCs, designed primarily for transactions between financial institutions rather than direct consumer payments.

The IMF's assessment draws on workshops involving 17 representatives from the four central banks, held in Lesotho from October 1–3, 2025. It emphasizes that introducing digital currencies without addressing existing financial weaknesses could create additional costs without delivering meaningful improvements.

Hidden Banking Barriers Are Holding Back Regional Growth

The IMF identifies four major obstacles affecting cross-border payments: inconsistent financial regulations, inefficient payment processing, liquidity and foreign exchange constraints, and unequal access to settlement systems.

Earlier Project Sunbird assessments focused largely on consumer payments while overlooking important wholesale banking challenges, including currency conversion, prefunding requirements and collateral management.

These problems can increase transaction costs for banks, businesses and consumers. They are particularly important for Lesotho and Eswatini, which depend heavily on remittances from South Africa.

Improving wholesale payment infrastructure could help families receive money faster, support small businesses and strengthen regional trade. However, the IMF cautions that digital currencies cannot automatically resolve cash dependence, limited rural banking services or financial exclusion.

The report also highlights slow progress in reducing remittance costs across Sub-Saharan Africa, where weak competition, expensive cash-handling operations and complicated reporting requirements continue to affect payment services.

Can Digital Currencies Make Cross-Border Payments Faster and Cheaper?

Wholesale CBDCs could enable 24-hour payment processing, improve transaction transparency and reduce dependence on correspondent banking networks.

The IMF examines two technological approaches: a shared digital platform connecting multiple central banks and separate national platforms linked through compatible systems.

Its comparison of six settlement solutions shows that all can support mechanisms linking currency or securities transfers with corresponding payments. However, only some arrangements provide strict simultaneous settlement, which can reduce transaction risks.

Compliance automation offers another opportunity. Banks currently face duplicated anti-money-laundering checks, complex balance-of-payments reporting and inconsistent regulatory requirements.

Drawing lessons from Project Mandala, an international experiment involving the Bank for International Settlements Innovation Hub and central banks in Australia, South Korea, Malaysia and Singapore, the IMF explains how automated compliance checks could reduce manual processing.

Nevertheless, the report warns that technology cannot replace regulatory reform. Governments must simplify reporting rules, strengthen cooperation and establish consistent legal standards.

New Opportunities for Fintech Firms, Banks and Development Partners

Expanding access to central bank settlement systems could create opportunities for financial technology companies, non-bank payment providers and smaller financial institutions.

Currently, many non-bank providers depend on commercial banks to process cross-border transactions, increasing costs and restricting competition.

More inclusive settlement arrangements could encourage innovation in remittances, e-commerce, trade finance and business payments. Faster transactions could also improve cash-flow management for small and medium-sized enterprises.

However, broader access introduces financial stability and operational risks. The IMF emphasizes that stronger supervision and appropriate safeguards must come before expanding access to central bank money.

For international development partners, the findings highlight opportunities to finance technical assistance, regulatory assessments, institutional training and payment infrastructure modernization.

Development institutions could also support research into transaction costs, settlement delays and financial inclusion, helping governments identify investments with measurable economic benefits.

IMF Calls for Urgent Reforms Before Digital Currency Rollout

The report identifies institutional capacity as a major implementation challenge. Many Project Sunbird participants dedicate only 1–10 percent of their working time to the initiative, while frequent staff changes disrupt continuity.

The IMF outlines eight principal recommendations, including two high-priority measures: updating wholesale financial market assessments and strengthening technical expertise.

Seven recommendations are intended for implementation within six months, while regular reviews of the project roadmap should continue.

The IMF recommends establishing a senior steering committee representing all four central banks, allocating dedicated personnel and clearly defining institutional responsibilities.

Governments should also coordinate Project Sunbird with existing regional payment initiatives to avoid duplication and unnecessary expenditure.

For policymakers, the immediate priority is to establish clear evidence of whether digital currencies can outperform existing settlement arrangements. This requires examining transaction costs, processing times, liquidity needs, compliance burdens and potential financial stability risks.

Ultimately, the report concludes that Southern Africa's payment modernization ambitions will depend not simply on adopting digital currencies, but on improving financial regulation, strengthening institutional capacity and encouraging responsible private-sector participation. A carefully designed approach could support regional trade, reduce payment barriers and improve access to financial services while protecting monetary and financial stability.