Nigeria launches central bank digital currency eNaira

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Nigeria’s CBDC pilot project is now the second largest behind the Chinese digital yuan and aims to digitize payments and increase financial inclusion in Africa’s most populous country.

The central bank of Nigeria (CBDC) digital currency eNaira was launched today following an announcement by President Muhammadu Buhari.

Buhairi said the digital currency and the blockchain technology it uses can drive economic growth and increase the GDP of Africa’s largest economy by $ 29 billion over the next 10 years.

Central Bank of Nigeria (CBN) Governor Godwin Emefiele said about 500 million eNaira (1.21 million) had already been minted instead of the digital currency going live.

In a Press release On Saturday, the CBN said the launch of the eNaira “marks a big step forward in the evolution of money and the CBN is committed to ensuring that the eNaira, like the physical naira, is accessible. to all”.

CBDCs are rapidly gaining popularity around the world, and Nigeria is the first African country to officially launch a state-supported digital currency pilot project.

With a population of 211 million, Nigeria’s CBDC trial is now the second largest behind the Chinese digital yuan. On top of that, over 62% of Nigerians are aged 24 or under, making eNaira accessible to a largely digital native population.

The development of eNaira was carried out by the financial technology company Bitt, whose digital currency management system is also the originator of the DCash digital currency of the Central Bank of the Eastern Caribbean.

Nigerian President Muhammadu Buhari, left, and Central Bank Governor Godwin Emefiele, at the launch of eNaira in Abuja, Nigeria on October 25, 2021. Nigeria has launched a digital currency which the Central Bank says of Nigeria (CBN), is a “big step forward in the evolution of the currency” in Africa’s most populous country. (Nigeria State House via AP)

Possible impacts of eNaira

Attached to fiat currencies and backed by a country’s currency reserves, CBDCs emerge as the path for governments to co-opt the momentum that has built up around digital assets, primarily in response to the popularity of cryptocurrencies like Bitcoin, which are decentralized and outside the remit of regulatory oversight.

A similar story happened in Nigeria, where the government and the central bank battled the rise of cryptocurrency in the country.

Nigeria has been one of the major markets for digital currencies, ranking sixth in terms of cryptocurrency adoption globally. It is the largest marketplace on the global crypto trading platform Paxful, which has 1.5 million Nigerian users out of its 7 million users worldwide.

Aside from wealth creation, the popularity of Bitcoin in Nigeria has been driven as a hedge against the naira inflation. The currency has been devalued twice and is worth 12.5% ​​less since the start of the pandemic.

In an effort to curb the growing popularity of crypto, in February, the CBN ordered local banking institutions to stop trading cryptocurrencies and stop facilitating payments for crypto exchanges. Four months later, plans were announced to introduce eNaira.

One of the goals of the CBN is to digitize payments and increase financial inclusion, and a CBDC can provide citizens with better access to financial services for both underbanked and unbanked people.

“With Nigeria still considered to be one of the least banked countries in the world, decentralized identity systems and CBDCs will provide people with a way to prove their identity and access banking services directly from their smartphone”, Ben Constanty, co-founder of Smartlink, said CoinDesk. “It also means that every transaction will go through this system in order to buy and sell things.”

Those who send remittances should also benefit. Given the currency restrictions and the high transaction fees associated with sending money in and out of the country, Nigerians previously used Bitcoin as a faster and cheaper alternative to conduct domestic transactions. and international.

By using the blockchain ledger, eNaira will be able to eliminate the need for third parties and contribute to efficient and low cost transactions, as consumers will have access to reliable and low risk payment options.

In addition, enhanced oversight of funds and payments provides a level of transparency that can be used to enhance public confidence and enable financial authorities to fight economic crime and fraud.

However, critics of the CBDCs fear they may allow central banks to exercise greater control, serving as a tool for regulators to monitor the financial footprint of private citizens.

“As central banks globally jump on the digital currency wagon, the space is likely to see more regulations, limitations and even censorship, as these will be controlled networks,” Constanty said.

The Nigerian banking sector is also likely to face a new digital asset challenge. Does the CBN offer a virtual wallet where everyone can store their money, does it make the use of banking intermediaries superfluous?

Besides Nigeria, the Bank of Ghana announced in June the pursuit of its own sovereign digital currency called e-Cedi, while the South African reserve bank launched a retail CBDC feasibility study in May.

Source: TRT World



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