The Central Bank of Nigeria (CBN) is expected to launch its digital currency Naira before the end of 2021. That’s according to Rakiya Mohammed, information technology specialist at CBN.
She revealed it on Thursday at the Bankers Committee meeting held via Zoom.
Once launched, digital currency will be accessible to everyone, just as local currency is accessible to everyone today.
This follows recent confirmation from CBN Governor Godwin Emefiele that the central bank will introduce digital currency in Nigeria. So what are the things you need to know about Nigeria digital currency?
1. Africa’s first digital currency
With plans to deploy a digital naira later this year, Nigeria could become the first African country to launch a central bank digital currency (CBDC).
Based on the CBN’s disclosure, apex bank reportedly rolled out the continent’s first digital fiat currency before the end of 2021.
Meanwhile, it appears to be a race between Nigeria and South Africa. The Reserve Bank of South Africa is already studying the feasibility of launching a digital rand (ZAR) that can be used for general retail purposes by consumers in the country.
Ghana, Morocco and Kenya are among other African countries looking to introduce digital fiat currency as soon as possible.
2. Only 2 countries in the world have launched CBDCs
Global CBDC issuance remains in its infancy. Therefore, only two countries – the Bahamas and China, have officially launched digital fiat currency.
Most CBDCs are in the pilot or proof of concept stage and have not yet been deployed to the general public. However, studies suggest that central banks in up to 46 countries are studying the viability of CBDCs.
The Bahamas is the first country in the world to issue CBDCs, having launched its sand dollar in 2020. The People’s Bank of China then began issuing its digital yuan in April 2021.
Other countries, including Sweden, Norway, Japan, Indonesia and South Korea, have announced digital currency trials.
3. CBDCs are blockchain-based but centralized
Digital fiat currency is typically deployed on a centralized blockchain network overseen by banking regulators.
CBDCs are not created to be decentralized like cryptocurrency. This means that the CBN will be able to monitor all transactions made by individuals or organizations using the Digital Naira.
As a type of distributed Ledger technology, blockchains were originally designed to be decentralized. But a typical centralized blockchain system is the private blockchain as it is governed by the banking regulator in this case.
Basically, every bank connected to the blockchain system can collect transaction data which can be aggregated and relayed to the CBN.
The digital Naira will be pegged to the fiat Naira at 1: 1. Based on what has been done in China, it will most likely be issued by the CBN to banks, who will then make it available to customers.
4. Mobile wallets would replace bank accounts
Unlike traditional bank accounts, opening a Naira digital account may only require a user’s phone number and ID, the same way mobile money wallets work.
However, mobile money wallets run on an application programming interface (API), not the blockchain.
Many Nigerians still use multifunction phones, with smartphone penetration still at 32%. Interestingly, there are already a few USSD-enabled crypto solutions that CBN could replicate to cater to non-smartphone users. Such a move could help increase Nigeria’s financial inclusion rate, which is just over 50%.
5. It could aim to phase out cryptos
According to the precedent set by the CBN, the launch of the digital naira could aim to wipe out cryptos altogether. Like China, the regulator can impose a complete ban on crypto trading in the country.
A quick review of the sequence of events that led to the possible launch of a digital naira by the CBN suggests that the earlier crackdown on cryptography was preplanned. Cryptos are in fact in direct competition with digital fiat, not least because they offer returns on investment when prices rise.
In addition, people prefer to hold a stable coin pegged to the dollar rather than a digital naira, in order to protect against inflation. Thus, the CBN could effectively seek to get rid of the cryptos.
Overall, the transition to digital naira transactions in Nigeria will not be easy by any means. Indeed, the dominance of cash, cybersecurity risks and low internet penetration present significant challenges.
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