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In the recent past, the world has witnessed an influx of technological advancements, especially in the financial sector, leading to the development of new forms of money, including central bank digital currency (“CBDC”).
A CBDC is an electronic record or digital token of a country’s official currency. It is issued and regulated by the monetary authority or the central bank of the country.2 Most digital payments are essentially checks – instructions for a bank to pay “real” money from a depositor’s account. As such, multiple players are involved in executing transactions, making payments, and administering millions of individual accounts. A CBDC, on the other hand, evolved from decentralized digital currencies like bitcoin and Ethereum and is more like money itself, and by cutting out the middlemen, it seemingly moves directly from a person. to another or from customer to supplier like a coin.3 It should therefore be emphasized that the CBDC is not a cryptocurrency. While CBDCs use permissioned (private) blockchains, cryptocurrencies use permissionless (public) blockchains, this means the CBDC is a centralized structure and the cryptocurrency is not; Cryptocurrency users benefit from anonymity and CBDC users will have their identity linked to an existing bank account and an equal amount of personal information; On CBDC networks, a central bank decides the rules while on crypto networks, authority is delegated to the user base, who make decisions by reaching consensus; CBDCs can only be used for payments and other monetary transactions, while cryptocurrencies can also be used for speculative purposes and for payments.4
In a survey conducted by the Bank for International Settlements (“BIS”), approximately 80% of 66 central banks have indicated interest in CBDC, while 10% are about to launch a CBDC for the general public.5 This shows the growing popularity of CBDC around the world.
Introduction of CBDC in Nigeria
Since 2019, when Libra,6 a digital currency backed by Facebook has been unveiled, there has been a deliberate effort by several governments around the world to explore the option of digital currency which is now known as CBDC.
In April 2017, the Federal Government of Nigeria launched an economic growth plan and as part of its growth plans, the development of a local digital currency was considered. The government had since cared for and researched digital currencies extensively. After much anticipation, the Chief Information Technology Officer of the Central Bank of Nigeria (“CBN”), Rakiya Mohammed has announced that the CBN will launch a CBDC project dubbed “PROJECT GIANT”.seven She further stated that the project will run on the hyper-book fabric blockchain, an open-source project for building blockchain-based products, solutions and applications used by private companies and is expected to start on October 1, 2021. .8
On Monday August 30, 2021, the Governor of the Central Bank of Nigeria (“CBN”), Mr. Godwin Emefiele, announced the formal engagement of the global Fintech company, Bitt Inc., as a technical partner for its project of digital currency. The Bitt. Inc., is a Barbados-based financial technology company that has played a huge role in the development of the Eastern Caribbean Central Bank, DCash was launched in April 2021 and was selected based on its technological proficiency, efficiency, platform security, interoperability and implementation experience. 9 The partnership is geared towards the launch and unveiling of eNaira, the proposed currency.
According to Emefiele, the CBDC is expected to deliver a number of benefits, including increased cross-border trade, accelerated financial inclusion, cheaper and faster remittances, easier targeted social interventions, as well as improvements in the effectiveness of monetary policy, payment systems efficiency and tax collection. ten
eNaira: the digital currency of the Central Bank of Nigeria
The banknotes and coins issued by the Bank are:
- in such denominations of naira or fractions thereof as shall be approved by the President on the recommendation of the Board; and
- such shapes and designs and wear such devices as shall be approved by the President on the recommendation of the Board.11
eNaira is a digital currency issued by the Central Bank of Nigeria12 which provides a unique form of currency denominated in Naira. eNaira serves as both a medium of exchange and a store of value, offering better prospects for payment in retail transactions compared to cash payments. eNaira has a proprietary operational structure that is both remarkable and unlike other forms of central bank money.13 Key features of eNaira include: a unified payment system; Contactless payment; Management of bank accounts; Peer-to-peer payment; etc
The eNaira will be supplied by the CBN to intermediaries (i.e. financial institutions) who, in turn, will contribute to the provisioning of individuals/customers. These institutions would maintain a cash wallet to collect eNaira from the CBN. They would then oversee identity verification, processing eNaira payments and generating wallets for Nigerians to store their eNaira. Through the app, customers could identify a bank of their choice, log into their bank accounts, and perform transactions.15
Additional benefits of eNaira include: fostering economic growth by providing easier access to capital and financial services, thereby increasing economic activities at a low/interest-free transaction rate; provide a secure and cheaper remittance option to the diaspora and expedite the conclusion of these transactions; limit the use of digital currencies for illicit or fraudulent purposes due to its traceability; enable efficient, equitable and faster distribution of cash assistance to households and communities included in government social protection programmes; ensure financial inclusion by making financial services available to people or communities who do not have (enough) banking opportunities; increase local and international trade by making transactions cheap, safe, fast and better; provide enhanced security as it cannot be tampered with or counterfeited due to its unique identity and security structure; facilitate revenue collection by reducing cash processing costs.16
A major downside of eNaira is privacy. Users would have to waive some degree of privacy since the administrator is responsible for collecting and distributing digital IDs. The provider would become aware of every transaction made. This can lead to privacy issues, similar to those plaguing tech giants and internet service providers (ISPs). For example, criminals could hack information and misuse it, or central banks could ban transactions between citizens.17 Other downsides are legal and regulatory issues with CBDCs, which create a “black hole.” What will be the role of these currencies and who will regulate them? Given their advantages in cross-border transfers, should they be regulated beyond borders? Experiments in CBDCs are ongoing, and that could mean a long time.18 Also, it could replace the currency of a weaker country; the portability of these systems means that a strong CBDC issued by a foreign country could end up replacing the currency of a weaker country. A digital US dollar could replace the local currency of a small country or a failed state. A good example is Ecuador, which replaced its official currency (sugar) with the US dollar in 2000 after high inflation forced citizens to convert their money into US dollars.19
With the Chinese digital yuan and the European digital euro and more specifically the entry of South Africa and Ghana into the digital currency race, Nigeria’s eNaira is highly commendable in the Afri-digital space. Nevertheless, it is hoped that the CBN will not just join the digital currency race, but also seek to promote citizens’ trust in the use of digital currencies.
1 Oreoluwa Adebayo, Associate Corporate Finance & Capital Markets Department, SPA Ajibade & Co., Lagos, Nigeria.
2 Investopedia, “What Is a Central Bank Digital Currency (CBDC)?”, available at https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp, accessed 12/15 /21.
3 IDEX, “What is central bank digital currency and how does it work?” », available at https://www.idexbiometrics.com/what-is-central-bank-digital-currency-and-how-does-it-work/, accessed 12/16/21.
4 Shrimpy Academy, ‘CBDC vs Cryptocurrency: What Are the Core Differences?’, available at https://academy.shrimpy.io/post/cbdc-vs-cryptocurrency-what-are-the-core-differences, accessed 20 /12/21.
5 See Coindesk “10% of Central Banks Surveyed Close to Issuing Digital Currencies: BIS” available at https://www.coindesk.com/policy/2020/01/24/10-of-central-banks-surveyed-close- to-issuer-digital-currencies-bis/, accessed September 2, 2021.
6 See Corporate Finance Institute, “Libra Cyrptocurrency”, available at https://corporatefinanceinstitute.com/resources/knowledge/finance/libra-cryptocurrency/, accessed 12/16/21.
7 See People’s Gazette “CBN’s digital currency CBDC set for October 1” available at https://gazettengr.com/cbns-digital-currency-cbdc-set-for-october-1/, accessed 2 September 2021.
9 See press release: “CBN Selects Technical Partner For Digital Currency Project” available at https://www.cbn.gov.ng/Out/2021/CCD/CBN%20Press%20Release%20(CBDC)%2030082021. pdf, accessed September 2, 2021.
10 Same as n. 5.
11 Section 19, Central Bank of Nigeria Act 2007.
13 eNaira platform, available at https://enaira.gov.ng/, accessed 12/16/21.
15 Premium Times, ‘EXPLAINER: Still unclear on eNaira? Here are 10 key things to know”, available at https://www.premiumtimesng.com/news/headlines/492151-explainer-still-not-clear-about-enaira-here-are-10-key-things-to- know.html, accessed 12/16/21.
17 Same as n. 1.
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