Digital Currency Gains Traction As Central Bank Of Nigeria Appoints Technical Partner
IMF urges caution on adoption of cryptocurrency as national currency
The Central Bank of Nigeria (CBN) yesterday announced the formal engagement of global fintech company, Bitt Inc., as technical partner for its proposed digital currency, also known as e-Naira. CBN Governor, Mr. Godwin Emefiele, disclosed this in Abuja.
But the International Monetary Fund (IMF) cautioned that countries seeking to adopt the digital currency should be wary of its disadvantages.
Emefiele said the Central Bank Digital Currency (CBDC) would bring about increased cross-border trade, accelerate financial inclusion, and lead to cheaper and faster remittance inflow. He said the digital money, also known as cryptocurrency, would lead to easier targeted social interventions, as well as improvement in monetary policy effectiveness, payment systems efficiency, and tax collection.
CBN’s Director, Corporate Communications Department, Mr. Osita Nwanisobi, explained, in a statement, that the e-Naira project had been a long and thorough process for the apex bank following its resolve in 2017 to digitise the local currency after extensive research and exploration.
Nwanisobi said CBN’s decision was in line with an unmistakable global trend in which over 85 per cent of central banks were considering adopting digital currencies in their countries.
The CBN pointed out that the selection of Bitt Inc. from among highly competitive bidders was based on the company’s technical competence, efficiency, platform security, interoperability, and implementation experience.
The statement said, “In choosing Bitt Inc. the CBN will rely on the company’s tested and proven digital currency experience, which is already in circulation in several Eastern Caribbean countries.
“Bitt Inc. was key to the development and successful launch of the Central Bank Digital Currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021.”
Emefiele had recently hinted that a national digital currency would be launched in October. The apex bank had also said the digital currency would be treated as a critical national infrastructure to protect it from operational and cyber-security risks.
Further clarifying the e-Naira project, the CBN governor had said, “You have some naira in your account and you chose to convert part of your naira into a digital wallet by way of a digital currency. We will support that.
“If, for instance, you have N10 million in your account. Of course, when this starts, the CBN will move some of the balances of banks with CBN to those banks in digital currency.
“So you go to your bank, you have N10 million and you want to move N2 million out of your N10 million into a digital currency.
“They’ll debit your account and move it to your wallet of N2 million digital currency, which you can spend across countries.”
Emefiele added, “So we think that this is a noble idea and we are not the first…many other central banks are at advanced stages of revealing their own digital currency.
“Our own digital currency, which is tagged e-Naira, will certainly come into operation, by the special grace of God, by October and we are working very hard for this.”
He also said, “We believe that transactions will be cheaper and more efficient, as there will be less to complete.
“The Nigerian economy, just like the rest of the world, is going digital and cash cannot play in that space. Therefore, e-Naira, which will represent the digital equivalent of cash, will be used as the fiat currency to effect transactions.
“And in terms of financial inclusion, we believe that with over 30 per cent of bankable adults still outside the financial system, the ability to have offline payment through our e-Naira initiative will bring most of them into the formal financial sector.”
According to him,” The use of cash is declining everywhere in the world, just as in Nigeria and with the advent of digital commerce, which is booming in the country, more and more people are adopting the use of electronic money to facilitate digital commerce.
“So our e-Naira is a digital representation of cash, which means as a fiat currency, it is a fiat currency that will be just as acceptable as the physical or analogue naira.
“We recognise the need for wide stakeholder engagement and education to be able to create awareness for the use of e-Naira as alternative to cash to further drive towards a cashless society.”
Meanwhile, just like the CBN had warned previously, IMF sued for caution by countries seeking to use crypto-assets as their national currency. The multilateral institution reiterated that the demerits of adopting crypto-assets as national currency outweighed its merits.
The Washington-based institution gave the advice in a blog post, titled: “Crypto-assets as National Currency? A Step Too Far.” It acknowledged that the new digital forms of money had the potential to provide cheaper and faster payments, enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers.
However, IMF stated that the potential benefits were not a straightforward process, as it required significant investment as well as difficult policy choices, such as clarifying the role of the public and private sectors in providing and regulating digital forms of money.
It observed that some countries might be tempted by a shortcut -adopting crypto-assets as national currencies, adding, “many are indeed secure, easy to access, and cheap to transact.”
The IMF stated, “We believe, however, that in most cases, risks and costs outweigh potential benefits. Crypto-assets are privately issued tokens based on cryptographic techniques and denominated in their own unit of account.
“Their value can be extremely volatile. Bitcoin, for instance, reached a peak of $65,000 in April and crashed to less than half that value two months later.
“And yet, Bitcoin lives on. For some, it is an opportunity to transact anonymously—for good or bad. For others, it is a means to diversify portfolios and hold a speculative asset that can bring riches but also significant losses.”