Nigeria joins China, Brazil and others in the race to launch its own central bank digital currency
Jun 14, 2021, 14:16 IST
The Central Bank of Nigeria is looking to launch its own central bank digital currency (CBDC) by the end of the year.
Rakiya Mohammed, an information technology (IT) specialist at the Central Bank of Nigeria (CBN), disclosed that the bank has been exploring the concept of a central bank digital currency (CBDC) for the last two years and a ‘special announcement’ shall come soon.
The cryptocurrency world is undergoing a period of rapid progression as governments and companies globally grapple with how they can leverage the technology for maximum returns.
The G7, for instance, stated that it’s working on a common set of CBDC principles for central banks to issue their own digital currency. The European Central Bank (ECB) has highlighted that countries that choose not to launch a CBDC could be left out of the loop when it comes to cross border payments.
Brazil, like Nigeria, is working on its own CBDC that will work as an extension of the physical currency that already exists.
What is Nigeria planning?
Nigeria initially tried to clamp down on cryptocurrencies at the beginning of 2021 and barred commercial banks and other financial institutions from servicing crypto exchanges.
While the information revealed is vague, Mohammed’s announcement confirms that Nigerian authorities are actively considering CBDC as a viable alternative and intend to pursue it as soon as possible.
The CBN’s digital currency will act complementary to naira cash notes, Nigeria’s local currency. Authorities are currently brainstorming the architecture, accessibility and privacy concerns of the system. The initial roll-out shall be a pilot program, similar to what China’s been trying with e-yuan — also known as just digital yuan.
It’s worth noting that the country received more than $26 billion via remittances in 2019, making a robust international transfer system a need of the hour. Ray Youssef, the CEO of peer-to-peer lending platform Paxful, confirmed last week that Nigeria is now its largest market in Africa. It holds the largest gas reserves on the continent and is also the peninsula’s largest oil and gas producer, which means there’s a lot of money going in and out of the country.
Its citizens are actively adopting new technology and many have already invested in Bitcoin to park their cash. For remittances, digital currencies offer far more flexibility as forex charges are pretty much non-existent and third-party players are minimal.
El Salvador became the first country last week to accept Bitcoin as legal tender alongside the US dollar due to the same reasons. However, a CBDC offers more control to the central bank and adds sovereign value, eliminating the high volatility that has plagued cryptocurrencies since their debut.
It’s available exclusively in digital form and can only be issued by banks as well as selected financial institutions. A central bank can record and verify all CBDC transactions. Meanwhile, there’s no gold or other commodity reserve to back it.
However, unveiling a CBDC is an extremely complex undertaking that requires years of planning, testing, and scaling. China leads the race currently and its pilot program is already active in a few cities. However, smaller countries like El Salvador cannot justify creating a new monetary policy out of scratch, and hence, choose to embrace existing cryptocurrencies.
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Rakiya Mohammed, an information technology (IT) specialist at the Central Bank of Nigeria (CBN), disclosed that the bank has been exploring the concept of a central bank digital currency (CBDC) for the last two years and a ‘special announcement’ shall come soon.
Before the end of the year, the Central Bank will be making a special announcement and possibly launching a pilot scheme in order to be able to provide this kind of currency to the populace.
The cryptocurrency world is undergoing a period of rapid progression as governments and companies globally grapple with how they can leverage the technology for maximum returns.
The G7, for instance, stated that it’s working on a common set of CBDC principles for central banks to issue their own digital currency. The European Central Bank (ECB) has highlighted that countries that choose not to launch a CBDC could be left out of the loop when it comes to cross border payments.
Brazil, like Nigeria, is working on its own CBDC that will work as an extension of the physical currency that already exists.
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What is Nigeria planning?
Nigeria initially tried to clamp down on cryptocurrencies at the beginning of 2021 and barred commercial banks and other financial institutions from servicing crypto exchanges.
While the information revealed is vague, Mohammed’s announcement confirms that Nigerian authorities are actively considering CBDC as a viable alternative and intend to pursue it as soon as possible.
The CBN’s digital currency will act complementary to naira cash notes, Nigeria’s local currency. Authorities are currently brainstorming the architecture, accessibility and privacy concerns of the system. The initial roll-out shall be a pilot program, similar to what China’s been trying with e-yuan — also known as just digital yuan.
It’s worth noting that the country received more than $26 billion via remittances in 2019, making a robust international transfer system a need of the hour. Ray Youssef, the CEO of peer-to-peer lending platform Paxful, confirmed last week that Nigeria is now its largest market in Africa. It holds the largest gas reserves on the continent and is also the peninsula’s largest oil and gas producer, which means there’s a lot of money going in and out of the country.
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Its citizens are actively adopting new technology and many have already invested in Bitcoin to park their cash. For remittances, digital currencies offer far more flexibility as forex charges are pretty much non-existent and third-party players are minimal.
El Salvador became the first country last week to accept Bitcoin as legal tender alongside the US dollar due to the same reasons. However, a CBDC offers more control to the central bank and adds sovereign value, eliminating the high volatility that has plagued cryptocurrencies since their debut.
What is a CBDC?
Unlike Bitcoin or Ethereum, which are decentralised blockchains and entirely dependent on market forces, a CBDC — central bank digital currency — is an instrument that replaces a physical banknote with a digital token or record.It’s available exclusively in digital form and can only be issued by banks as well as selected financial institutions. A central bank can record and verify all CBDC transactions. Meanwhile, there’s no gold or other commodity reserve to back it.
However, unveiling a CBDC is an extremely complex undertaking that requires years of planning, testing, and scaling. China leads the race currently and its pilot program is already active in a few cities. However, smaller countries like El Salvador cannot justify creating a new monetary policy out of scratch, and hence, choose to embrace existing cryptocurrencies.
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Right now, it’s impossible to say which system works more efficiently as each has its unique selling point. Cryptocurrencies offer some level of anonymity and are practically borderless. A CBDC, while not as decentralised, can offer a stable value in comparison to the volatility seen in private cryptocurrency. However, it raises questions of state-backed surveillance, tighter controls, and the high costs associated with the rollout.SEE ALSO:
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