Much noise about Nigeria’s digital currency | The Guardian Nigeria News
Through Victor Ekwealor
January 16, 2022 | 5:18
It has been 12 months since the Central Bank of Nigeria (CBN) announced a total ban on cryptocurrencies and related activities and 7 months since it announced an official digital currency. What changed? What effect has this had on the financial ecosystem and the average user? Also, what exactly are these CBDCs? Before us…
It has been 12 months since the Central Bank of Nigeria (CBN) announced a total ban on cryptocurrencies and related activities and 7 months since it announced an official digital currency.
What changed? What effect has this had on the financial ecosystem and the average user? Also, what exactly are these CBDCs?
Before we begin, let’s go back a bit to the very beginning.
Cryptocurrencies have largely become mainstream, and chances are if you’re reading this you know something about Bitcoin and perhaps one or more of the over 6,000 digital currencies that now exist in the world.
Nigeria, like many other countries around the world, has taken a skeptical regulatory stance on crypto. Sometimes even going down heavily and proactively on digital currencies, like the total ban in February 2021.
This ban was followed largely by a lot of backlash and backlash from crypto enthusiasts across the country. The CBN responded to all of this by announcing its own digital currency – the electronic naira, or eNaira, as it is popularly known, on October 25, 2021.
President Muhammadu Buhari on the day of the official launch said, “Nigeria has become the first country in Africa, and one of the first in the world, to introduce digital currency to its citizens, with the launch of the Bank central Nigeria. Digital currency, the eNaira.
And the project took off like wildfire, at least, according to CBN Governor Godwin Emefiele.
Emefiele spoke specifically at an industry event;
“In less than 4 weeks since its launch, almost 600,000 downloads of the eNaira application have taken place. Efforts are underway to encourage faster adoption of eNaira by Nigerians who do not have smartphones. Support from the financial industry will be critical in the ongoing rollout of eNaira and efforts are underway to encourage continued partnership between the CBN and financial industry stakeholders,” he said.
This announcement and the project have faced their own backlash, justified or not.
According to the CBN, its eNaira, codenamed Project Giant, has been in the works since 2017.
But all the evidence indicates more that it felt less like a 5-year roadmap for enforcement and more like a reactive response to the crypto ban. From the ever-changing launch schedule to the uncertainty surrounding expectations, there was no indication of a long-term plan that was in the works.
Timelines can be debated, but Bitt Inc.’s choice of CBN as the technical partner for the project has not gone down well with stakeholders, many of whom have questioned the choice of a foreign company for such a project. sensitive.
The apex bank responded, saying its decision to select the company was based on its “technological proficiency, efficiency, platform security, interoperability and implementation experience.”
That doesn’t seem too overdone.
The software company in question, Bitt, is a Barbados-based provider of digital currency and central bank digital currency (CBDC) solutions. They previously partnered with the National Bank of Belize (NBB) to launch a CBDC.
A few months earlier, in a similar vein, the Bank of Ghana partnered with German banknote printer Giesecke & Devrient to build a CBDC. So maybe a foreign tech partner isn’t such a big, bad deal.
Except in the case of Nigeria, this is the antithesis of the government’s position on promoting local talent.
For a long time, the country’s ICT regulators have emphasized the importance of promoting in-house alternatives over foreign ones.
Speaking at an event in 2018, the Director General of the National Information Technology Development Agency (NITDA), Dr. Isa Ali Pantami, reiterated the agency’s position on these issues.
He said that 80% of the Nigerian IT market had been taken over by foreign companies and by 2020 the country would have spent around N120 billion on importing foreign technology.
“The main objective of the local content initiative and guidelines is to ensure that Nigerian ICT companies are able to participate meaningfully at all levels of the ICT value chain to create jobs, wealth and knowledge locally.As regulations governed by Sections 6, 17, 18 and 32 of the NITDA Act of 2007 and Sections 1 and 3 of the Communications Act of 2003, the Guidelines have the force of law and are mandatory,” Patami said.
Why then, in this posture, would technical partnerships be outsourced for projects of this ramification?
Stakeholders insist that the technical capacity for this exists, and there is no evidence to the contrary.
According to James (not his real name), a software engineer with over a decade of experience in the Nigerian technology sector,
“Over the past few years, technical skills in Nigeria have skyrocketed and are now being exported around the world. There are many companies that I know of in Nigeria that can do what these people [Bitts Inc.] have done. The government says it supports the tech ecosystem, but gestures like this speak to a different reality.
But amid the debates that have raged and are raging now, one question remains, what is the purpose of eNaira?
Its official website says digital currency,
“…allows households and businesses to make fast, efficient and reliable payments, while benefiting from a resilient, innovative, inclusive and competitive payment system.”
Africa is, arguably, currently in the midst of a Fintech boom, which has resulted in thousands of payment products and more every day.
The above proposition describes the core value of the myriad fintech products and mobile payment wallets currently flooding app stores.
Which begs the question why would anyone leave the already existing payment systems they trust and switch to eNaira? Now, to be fair, this problem is not native.
Let’s zoom out a bit.
As of Q4 2021, 81 countries were proactively considering CBDCs, and that number is a huge jump from Q2 2020, when only 35 countries were interested in doing so.
Speaking on this, Chetan Ahya, Chief Economist at US investment bank Morgan Stanley, said;
“A major move to introduce central bank digital currencies (CBDCs) could actually disrupt the financial system. Efforts to introduce CBDCs are gaining momentum, with up to 86% of central banks around the world exploring currencies digital.
Some countries are genuinely interested in creating digital currencies, but the main reason many of them are getting started is to provide alternatives and/or totally replace cryptocurrencies in their domains.
While CBDCs are backed by these apex banks and are like stablecoins in themselves, they are not crypto.
Simply put, crypto is built on an infrastructure that is not controlled by anyone, while CBDCs are, of course, the responsibility of these central banks.
Either way, to a large extent, CBDCs will be integral to the future of digital currencies, but they can never replace crypto, and that’s part of the problem. Especially in Nigeria, where the government does not have a great reputation for managing innovation.
The Nigerian President, on the potential of CBDCs, wrote that its use can “move many more people and businesses from the informal to the formal sector…spur economic growth through better economic activities…increase the GDP of Nigeria $29 billion over the next 10 years. .. increase remittances, foster cross-border trade, improve financial inclusion, make monetary policy more effective, and enable the government to send direct payments to eligible citizens for specific social programs.
However, when asked what she thinks of digital currency, Bisi (not her real name), a 30-year-old woman from Lagos, said:
“From the government, so he cannot be trusted. Neither safe nor secure. Unclear use cases as far as I’m concerned. No compelling reason to use it.
Philip (not his real name), a photographer who downloaded the app when it launched, told Guardian Life,
“I only remembered that I had the app because you asked for it. I haven’t found a reason to use it yet.
eNaira suffers from a fundamental problem, and like other CBDCs, regulators need to realize that it is not essentially a cryptocurrency and refine its value proposition.
And in the meantime, this question of use and usefulness will remain unanswered.