Experts reveal how CBN’s digital currency works and its implications • Techpoint Africa

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“Is Nigeria launching its own Bitcoin? Will the Naira have the same value as the dollar? Are we now going to save our Naira on crypto exchanges? ”

These are questions a young friend of mine bombarded me with when I mentioned Nigeria was going to have its own digital currency. I responded with a confident “no”, but did not receive a follow-up response. “How exactly would that work?” ”

Digital currencies have grown in popularity over the years. One of the most notable being Bitcoin, the first successful version, created in 2009 by the elusive Satoshi Nakamoto.

Much of its popularity stems from the stories of people who have made huge sums of money investing it and, ironically, those who have lost money because of it.

At a Senate hearing in February, Central Bank of Nigeria (CBN) Governor Godwin Emefiele described them as “money out of thin air.

In an interesting turn of events, CBN is using the technology behind this “money coming out of the air” to create eNaira. He revealed on July 22, 2021 that the pilot of the project would begin.

While digital currencies like Bitcoin, Ethereum, and Elon Musk’s coveted Dogecoin are relatively popular, central bank digital currencies (CBDCs) are not as well known.

A government-issued digital currency works differently from a cryptocurrency like Bitcoin. Cryptocurrencies are not controlled by a single entity. The creation and distribution of Bitcoin is decentralized, which means anyone can participate.

To get an overview of how CBDCs work, Techpoint Africa spoke with experts on what to expect as Nigeria launches its CBDC in October.

Why is Nigeria launching eNaira?

Adedeji Owonibi, Founder and COO of Blockchain Solutions Company, Convexity, explains that CBDCs are all the rage and countries want to be part of the action. More than 80 countries are testing and studying the possibility of a central bank digital currency.

Adedeji Owonibi speaking at Techpoint Africa’s digital currency summit in March 2021

He adds that the CBN also feared the pull of cryptocurrencies. Ownonibi, who is also a forensic investigator, says he tried to allay their fears. “When the central bank expressed their fear that crypto would gain so much traction, I was invited to speak with them and explained how crypto oversight can be done through banks.”

Ankit Singhal, Technical Director of Module, a US-based financial solutions company, says countries are adopting CBDCs “because they realized the capacity of Blockchain, how fast, cheap and reliable they are.”

From a PowerPoint presentation seen by Techpoint Africa, CBN says the goal of eNaira is to foster financial inclusion, improve payment efficiency, improve revenue and tax collection, targeted social interventions, among other goals.

While eNaira will play an important role in financial inclusion and propel a cashless policy, Owonibi believes there will be no major improvement on the Nigerian economy.

Singhal, on the other hand, sees the adoption of CBDCs as a realization of the power of blockchain. Technology, he says, can improve several sectors of the African economy.

What are CBDCs and how do they compare to cryptocurrencies?

CBDCs are digital currencies issued by the government. While they may share similarities with cryptocurrencies – running on a Blockchain for example – they are not necessarily cryptocurrencies.

In the words of Chimezie Chuta, Founder / Coordinator of Blockchain Nigeria User Group, Vice Chairman of Nigeria Blockchain Industry Coordinating Committee (BICCoN) and Member of the Fintech Alliance Coordination Team (FACT ), “There are characteristics that make cryptocurrencies what they are which CBDCs are not.”

He states that CBN does not create cryptocurrency as some might think. “Basically what they’re trying to do is turn our Naira fiat currency into a currency designed for the Internet.”

Simply put, CBDCs are digitally created currencies to facilitate digital transactions. While we can already do digital transactions with the Naira, the eNaira does not need to be backed by physical money.

Will eNaira rise in value like Bitcoin?

photo by CardMapr.nl on Unsplash

The eNaira will not rise or fall in value like Bitcoin or other cryptocurrencies.

Interestingly, the eNaira will work the same as the Naira. The difference being that the first one is digital. The eNaira will be pegged to the Naira so that their value stays the same, like stablecoins pegged to the dollar.

“The CBDC show will not suddenly change your fortunes,” Chuta said.

The eNaira is pegged to the Naira, which means it maintains the value of the Naira.

Owonibi corroborates Chuta’s position, pointing out that the eNaira “does not protect against inflation”.

Essentially, it works the same way that stablecoins hold value. A stable coin is a cryptocurrency that is immune to volatility. They are pegged to fiat currency and have the same value as fiat currency. By Investopedia, they are backed by inverted assets such as commodities or a foreign currency. In the case of the eNaira, it will be backed by the Naira.

How will the eNaira work?

Source: Supplied

Owonibi, who is one of the brains consulted by the CBN on how a digital currency works, reveals that banks and fintechs will have an important role to play in the deployment of eNaira.

“The interconnected nature of the payments landscape will be maintained, which means that… deposit banks and Nigeria’s Interbank Settlement System (NIBSS) will always have a role… FinTech companies will also have a role and the central bank will be between . “

This suggests that even if Hyperledger Fabric Blockchain, the blockchain network selected by the CBN for eNaira, is allowed, the government will grant access to all parties declared by Owonibi. Nevertheless, he has full control of the system.

Financial institutions will play a role in verifying identity, processing payments, among others.

Owonibi adds that “anyone with a fintech license can create the eNaira and also create portfolios for clients.”

In Chuta’s explanation of how digital currency works, he points out that it will be a peer-to-peer (P2P) transaction by people owning the eNaira wallet “as we do in crypto, wallets will allow you to store, send and receive eNaira ”

Contrary to Owonibi’s claim that fintech with licenses will be able to hit eNaira, Chuta believes that CBN will be the only one to hit digital currency. A legal claim from the CBN will safeguard every digital currency created to control inflation. He describes it as “a legal claim for the availability of this Naira during a physical vote”

Chuta highlights the stages in the implementation of eNaira, which includes the issuance of currency by the CBN, distribution through approved financial institutions, exchange between individuals and businesses and the CBN surveillance.

Owonibi clarifies further by saying that wallets will be created through financial institutions in the same way that bank accounts are created.

Likewise, the Chinese digital yuan is distributed through commercial banks. By CNBC, they will be responsible for putting the money in the hands of consumers.

Will eNaira be connected to existing bank accounts?

No, the eNaira will be created independently of the bank accounts. According to Owonibi, the wallets will be created by financial institutions that will create customer identification through an application product interface (API).

Chuta, on the other hand, says connecting CBDC wallets to existing bank accounts is a bit tricky. Although he’s not sure, he believes there should be a link between Bank Verification Numbers (BVNs) and wallets. “Without it, an individual could have two identities,” he says.

In the case of China, however, the digital yuan has no connection with existing bank details. Deputy Governor of the People’s Bank of China (PBOC), said Fan Yifei CNBC that existing bank accounts are not necessarily linked to Yuan digital wallets.

Can the government monitor transactions with eNaira?

Yes, the government can monitor all eNaira transactions on the Hyperledger Fabric blockchain.

Government issues CBDC to maintain own monetary sovereignty, says Chuta Techpoint Africa. If cryptocurrencies like Bitcoin and Etherum gain popularity, the government will lose that control. The eNaira is therefore a means of maintaining control.

He admits that “unfortunately” the government directly sees and controls everything that happens with eNaira.

“When do you erase the intersection of citizen privacy? ”

These are some of the questions Owonibi says he asked the CBN but got no answers. It reveals that the Chinese government has unequivocally stated that transactions with the digital yuan will be carefully monitored. Maybe Nigeria could follow suit.

Several questions remain unanswered

Until the pilot project for the eNaira begins in October, no one is sure what to expect. From how cross-border payments will work to how privacy will be ensured, Owonibi admits to me that he has several unanswered questions.

In October, he hopes to get more clarity.


He’s a geek, a blockchain sucker, and a tech lover on every level.


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