Nigeria Cranks Up Efforts for a CBDC Pilot Launch in 2021

Nigeria’s Central Bank Digital Currency will likely see the light of day in 2021 according to an official from the Central Bank of Nigeria.

By
Chung Yee
on
June 13, 2021
Category:
Blockchain News

CBDC to Complement Nigeria’s Existing Naira

In an article released on June 10, 2021, the People’s Gazette confirmed the potential ambitions of the most populous African nation regarding their Central Bank Digital Currency (CBDC). Rakiya Mohammed, The Director of the IT Department of the Central Bank of Nigeria (CBN), was quoted saying a special announcement will be made by the end of 2021. Mohammed highlighted the country’s progress in the last two years regarding digital technology. 

The CBN wishes to launch its own digital currency to complement the existing physical currency. This is a move that many sovereign states have alluded to. The European Central Bank (ECB), on June 2, 2021, called for a similar adoption, citing the benefits of a central bank digital currency. Nigeria’s stance comes after Ghana, a neighboring nation, also announced plans in June for a similar venture. Ghana would be the first African nation to take such a step.

Source

Nigeria sees the need to introduce a digital version of its currency, the Naira, in its effort to curb claims of illicit activities that lead to its ban on cryptocurrencies in February this year. The country’s top bank’s Governor, Godwin Emefiele, addressed cryptocurrencies at the nation’s monetary policy meeting in late May.

He acknowledged the growing use of crypto in the country but warned of exploits: “We found out that a substantial percentage of our people are getting involved in cryptocurrency, which is not the best. Don’t get me wrong, some may be legitimate, but most are illegitimate.” 

The governor’s stance is an often-quoted narrative that aims to portray cryptocurrencies in a bad light. This myth has been debunked many times. In a report from April 2021, published by Beacon Strategies, led by former Director of Intelligence at the Central Intelligence Agency, Michael Morell, a detailed analysis of this allegation has been published. The conclusion is simple: most criminal financial activity still occurs within the traditional banking system, not on blockchains. 

Abeokuta, Nigeria, Source

Nigeria’s Crypto Treatment

The creation of a Digital Naira is seen by the country’s authorities to be a solution to their people’s widespread conversion to cryptocurrencies. This view cannot be further from the truth. Crypto adoption is simply based on fundamental simple economic principles, like availability and accessibility for users. 

Cryptocurrencies now have widespread recognition and interoperability across the world. Financial products offered through Decentralized Finance (DeFi) are growing exponentially, especially in countries like Nigeria. However, the country remains cold towards adoption for reasons related to revenue in the country.

Source

Mohammed confirmed that the work on a digital Naira has been ongoing for two years. This explains why the Nigerian authorities have held strong in their anti-crypto stance over the last six months. 

December 16, 2020 - CBN issues directive to International Money Transfer Operators (IMTOs) to cease diaspora remittance in Naira

December 18, 2020 - Crypto adoption soars in Nigeria after CBN blocks remittance in Naira

February 5, 2021 - CBN banned banks from serving crypto exchanges

May 26, 2021 - CBN may reverse the ban on cryptocurrencies according to CBN’s Governor, Godwin Emefiele


CBDC to Lessen Forex Restrictions

Over the past year, strict policies on international remittance had led to further crypto adoption in Nigeria. In the article by the People’s Gazette, Director Mohammed alluded to how the new digital currency will be created as a mechanism to continue ForEx restrictions. ForEx revenue is the largest non-oil revenue source, with $26.4Billion sent back to the country. The country attempts to control remittance value with incentive offers to those sending money back. 

By not wanting to lose control of the largest non-oil revenue to the country, the solution appears to be banning cryptocurrency and making banks inaccessible to cryptocurrency holders. The ban would not be an effective means to control cryptocurrencies. Ms. Mohammed confirmed that the architecture, accessibility issues, and privacy were considered in developing the digital currency.

The country held earlier talks about classifying crypto assets as securities and bringing it within the purview of the Securities and Exchange Commission. This is a better solution. By regulating the industry, they will have more control and can keep an eye on the industry. Nigerian authorities should recognize that a decentralized network allows operation despite censorship and crypto will be accessible in more ways than not despite prohibition.

Source

CBDC as an Additional Form of Remittance

Perhaps after a period of attempting to censor cryptocurrency from its people and realizing that such an attempt would be futile, the authorities should have focussed on regulating the use and adoption of crypto assets. Digital Naira may well be an effective solution that will give a better alternative to its people to make foreign remittances. Demonizing cryptocurrencies with inaccurate narratives may no longer be applicable today. The maladies that are often leveled against cryptocurrencies can be better addressed with a comprehensive set of regulations coupled with proper anti-money laundering procedures and know-your-customer (KYC) standards.  

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance. His largest crypto holdings are Solana, Ethereum, and BNB Token.

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