The Central Bank of Nigeria (CBN) has mentioned that it plans to release the pilot scheme of its Central Bank Digital Currency (CBDC) on Self-reliance Day. This was mentioned at a press instruction provided by Rakiya Mohammed, Director, IT Department at the CBN.
She stated that the apex bank has been carrying out research study in regard to central bank digital currencies since 2017 and might perform an evidence of concept before completion of this year.
The project name is tagged Job “GIANT” and a blockchain innovation called the Hyperledger Fabric Blockchain is being used. The CBN has actually likewise called its CBDC ‘e-Naira.’
In a presentation to banks, as earlier reported by Nairametrics, the CBN gave insight into how the e-Naira would operate, noting that it will be a legal tender for the whole country and have non-interest-bearing CBDC status, a transaction limitation for clients and a value-based deal limitation.
According to the discussion likewise, the CBN will provide its own wallet called the “Speed wallet,” however the wallet will not compete with existing banks. The CBN awaits the creation of “wallets” by banks and other innovators.
How to use the e-Naira
To use the e-Naira to negotiate, users will have to download the speed wallet, verify their account on the wallet by using either their phone number, National Identity Number (NIN) or Bank Confirmation Number (BVN).
The discussion also shows how the Federal government Ministries, Departments and Agencies (MDAs) will be onboarded and use the e-Naira to do remittances to their staff and members of the general public when there is mass adoption of the e-Naira and how residents can pay to MDAs utilizing the e-Naira.
Advantages of the e-Naira
Sean Stein Smith, a professor at the City University of New York, Lehman College, mentioned, ” A CBDC provided and governed by a central bank or other governmental firm will assist push the accounting and reporting discussion forward.
” Accounting might not produce splashy headlines, however in order for any crypto, and by extension blockchain, to attain larger use, accounting and reporting needs to be standardized.
” Taking a look at the tax problems linked to cryptocurrency alone highlights the need for standardized and consistent regulative treatment that does not suppress additional innovation.”
The e-Naira will likewise benefit as it will make governmental remittances easier. The case of the palliatives given throughout the lockdown last year, where many Nigerians did not receive theirs, can be solved if the federal government can easily remit money to its citizens. The e-Naira will likewise be able to better execute the CBN’s cashless policy.
Another point will be the reduction in the need for printing money in the long term.
In addition, the cases of monetary fraud can be quickly tracked as the federal government will be able to monitor the flow of cash around the country as it provides transparency and is challenging to counterfeit.
With the use-case described let’s attend to the elephant in the room. Does Nigeria actually require a CBDC?
The Nigerian banking system is among the most sophisticated worldwide and the banking system continues to advance its technological strength. In Nigeria, domestic intra bank deals are done within seconds and at many minutes, a task the United States was just able to accomplish in 2017 through the production of Zelle.
Before Zelle, fintech items like CashApp dominated immediate transfers in the U.S. The U.S industrial banks took 2-3 days to move money in between banks and when they realized a great deal of users started adopting these fintech applications, they started integrating Zelle into their system to cultivate these instant payments between banks so regarding meet up with the competitors.
Asides from our technological strength, the average Nigerian transaction involves the usage of 4 payment techniques which are all immediate; Point of Sale (POS) device, Online Bank Transfer, USSD Code enabled transfers and fiat currency.
Dipo Fatokun, CBN’s former Director of Banking and Payment System, specified monetary inclusion as the access to financial services that are available to the adult population in any given economy. A major component of the e-Naira is the requirement for smart devices. This postures an issue because according to Pew Research Center, only 32%in Nigeria use mobile phones. Nigeria’s population is 206 million people and this represents roughly 66 million individuals. Another report from the Guardian states that Nigeria has roughly 170 million mobile phone users based upon subscriptions however just about 25 and 40 million users have smartphones which represent just 10-20%of the population.
Because the CBN’s required also includes monetary addition, the proposed e-Naira limits the number of individuals within the country that can have access to a digital wallet, not to mention, a CBDC.
Although one could make a case that the usage of CBDC assists to better keep track of illicit transactions within the country, however in the real world, a Nigerian CBDC will be too pricey to carry out and may be rendered ineffective quickly when compared to other systems that exist.
According to Olumide Adesina, a writer for CoinDesk, ” The CBN aims for the CBDC to increase financial addition quickly and quickly. Creating and holding funds for people in a reserve bank account might provide better access to monetary services for the unbanked or underbanked.
” Nevertheless, some financial experts likewise believe the CBN can spend in deficit and shift funds straight to residents without stressing over the nationwide debt in times of economic challenge. In other words, a CBDC could present an obvious inflation threat.”
He further specified, ” This would also boost control over the level of access a Nigerian resident has to a financial system, particularly if the citizen attempts to take part in behaviours considered to be a risk by the monetary authority.”