Aside from wealth creation, the popularity of Bitcoin in Nigeria was driven as a hedge against the naira’s inflation. The currency has been devalued twice and is worth 12.5 percent less since the onset of the pandemic.
In an effort to curb the growing popularity of crypto, in February the CBN ordered local banking institutions to stop dealing in cryptocurrencies and stop facilitating payments for crypto exchanges. Four months later, plans were announced to introduce the eNaira.
Among the CBN’s goals is to digitise payments and increase financial inclusion, and a CBDC can offer citizens greater access to financial services for the underbanked or unbanked.
“As Nigeria is still considered one of the most ‘unbanked’ countries in the world, decentralized identity systems and CBDCs will provide the population with a way to prove their identity and get access to banking services directly from their smartphone,” Ben Constanty, co-founder of Smartlink, told CoinDesk. “It also means that every transaction will go through that system in order to buy and sell things.”
Those sending remittances also stand to benefit. Given foreign exchange restrictions and high transaction fees linked to sending money in and out of the country, Nigerians have previously been using Bitcoin as a faster and cheaper alternative to make domestic and international transactions.
Using the blockchain ledger, the eNaira will be able to eliminate the need for third parties and contribute to efficient and low-cost transactions, as consumers gain access to low-risk and reliable payment options.
Additionally, enhanced oversight of funds and payments provides a level of transparency that can serve to strengthen public confidence and allow financial authorities to tackle economic crime and fraud.
However, critics of CBDCs fear they will allow central banks to accrue greater control, serving as a tool for regulators to monitor private citizens’ financial footprints.
“As central banks globally jump on the digital currencies wagon, the space is likely to witness more regulations, limitations and even censorship, as these will be controlled networks,” says Constanty.
The Nigerian banking sector is also likely to face a new challenge when dealing with digital assets. With the CBN offering a virtual wallet where everyone can store their money, does it make the need for banking intermediaries redundant?
Apart from Nigeria, the Bank of Ghana announced in June the pursuit of its own sovereign digital currency called the e-Cedi, while South Africa’s reserve bank launched a retail CBDC feasibility study in May.
