Central Bank of Nigeria will create digital currency within 2 years
2023.01.12 08:17
Central Bank of Nigeria will create digital currency within 2 years
By Tiffany Smith
Budrigannews.com – Over the next two years, Nigeria’s central bank will investigate the potential of stablecoins, the use of blockchain technology to power a central bank digital currency (CBDC), and regulatory considerations regarding ICOs.
These are the main takeaways from a policy document released by the Central Bank of Nigeria (CBN) and titled Nigeria Payments System Vision 2025. The document, which is 83 pages long, discusses a variety of implications for the country’s current payments landscape, with blockchain-based systems taking center stage.
The document delves into the implications of CBDCs that are based on blockchain technology and lists 11 potential benefits of such an offering, such as managing cash costs, combating counterfeit currency, clear audibility, improvements to logistics, and improved payment efficiency.
The central bank of Nigeria is of the opinion that better control over the value of the currency can be achieved through improved monetary policy through the monitoring and adjustability of a CBDC. Additionally, the Bank points out that a CBDC would enable it to better monitor and control tax evasion, money laundering, and other illegal activities.
Last but not least, the CBN emphasizes increased economic growth and financial inclusion, encouraging innovation and efficiency by increasing retail payments product competition among existing financial institutions. They stated that the introduction of a CBDC solution in Nigeria could take anywhere from three to five years.
As fiat-backed digital currencies gain popularity all over the world, stablecoins are also on Nigeria’s radar. For stablecoin offerings to be implemented in Nigeria, the CBN cites the necessity of creating a regulatory framework.
The CBN has a cautious attitude toward ICOs, pointing out that existing ICOs have “little appetite” to be adopted due to their “lack of regulation.” Despite this, the CBN sees the potential in adopting ICOs as a novel method of capital project fundraising, peer-to-peer lending, and crowdfunding. Additionally, the CBN sees ICOs as an asset class.
Another interesting aspect of the policy document that has been highlighted is the functionality of smart contracts. The CBN talks about the “tangible benefits” of using smart contracts to link settlement to the transfer of ownership, as well as to complete commercial trade transactions or the transfer of ownership of financial securities.
Since October 2021, the nation has been testing its CBDC, the eNaira, but the project has struggled to gain support from citizens. According to a Bloomberg report from October 2022, only 0.5% of the country’s population uses eNaira. In the meantime, Nigerians are becoming increasingly interested in cryptocurrencies, as evidenced by data from Google searches in the middle of 2022.
Cointelegraph inquired with Renaissance Capital’s director of fintech and banks, Adesoji Solanke, regarding the reported lack of adoption of the government-issued eNaira and the appetite for cryptocurrency trading in Nigeria.
Despite local banks marketing the eNaira to their customers, Nigerians have shown little interest in it, according to Solanke, who shared the same sentiments.
“On the consumer and merchant sides of the payments equation, there hasn’t been a widespread adoption of the eNaira in the country just yet.”
According to Solanke, the cross-border functionality of cryptocurrencies and the speculative capital gain option they provide are driving their growing popularity. According to Solanke, weighing whether the eNaira could become widely used in Nigeria is a more difficult decision.
First, more customers would need to download the wallet and fund it. Customers, merchants, and other financial system participants should be able to use the eNaira wallet’s numerous superior use cases. Merchants require a payment system that is powered by contactless devices that are connected to the eNaira and can read the wallet using smartphones, QR codes, or USSD codes.
Additionally, according to Solanke, there should be more specific incentives for each industry to adopt eNaira. Adoption could be boosted by incentives like no or low fees for peer-to-peer or merchant transactions and functionality that goes beyond immediate financial services.
According to Solanke, stablecoins are another complicated topic due to the possibility of their increased use “weakening the efficacy of monetary policy.” CBDCs could be a major theme in economic evolution in the medium term, and central banks may try to make stablecoin regulations clearer because of this.
Given that ICOs could be regulated and adopted as securities or a new asset class, collaboration between the CBN and the Nigerian Securities and Exchange Commission would also be necessary.
In 2021, the Central Bank of Nigeria took a firm stance against the cryptocurrency industry, effectively prohibiting local banks from providing services to cryptocurrency exchanges. 18 months later, local media reported rumors of a policy change in the form of a possible amendment to existing laws that would recognize cryptocurrency as investment capital.
