Journey Towards Nigeria’s Digital Currency

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Central banks in more than 70 countries are presently studying or at advanced stages of developing their Central Bank Digital Currency (CBDC), which are digital representations of fiat currencies developed and issued by the apex banks.

In line with this, in Nigeria, the Central Bank of Nigeria (CBN) took a major step towards the launch of its own digital currency, commonly known as the e-Naira last week with its formal announcement of its engagement of global fintech company, Bitt Inc. as its technical partner for the project.

To choose the technical partner, the CBN went through a rigorous vendor selection process in line with the Public Procurement Act, conducted by seven departmental directors and a Deputy Governor whereby 15 companies were evaluated. The evaluation was based on the following criteria: technology ownership and control; implementation timeline; efficiency, ease of adoption; support for anti-money laundering and combating the financing of terrorism (AML/CFT); platform security; interoperability; implementation experience.

According to a document seen by THISDAY, from the evaluated 15 companies, Bitt came tops with an average score of 82.3 per cent. The scores for some other bidders were: Bitt- 82.3 per cent; InterStellar – 76.9 per cent; Zimbali- 76.4 per cent; G+D – 76.3 per cent; and EmTech -66.4

InterStellar’s core technology is called STARGATE. Which is blockchain agnostic. Its primary blockchain is the Bantu Blockchain.

Indeed, technological advances in recent years which was further propelled by the COVID-19, have led to a growing number of fast, electronic means of payment available to consumers for everyday transactions.

Essentially, given their source, CBDCs are not decentralised but simply a digital token issued as the territory’s currency, regulated and backed by local monetary reserves, the report by Zerocap stated.

In addition, CBDCs may or may not utilise blockchain technology, depending on the frameworks used to implement the assets into circulation.

The Bank for International Settlement (BIS) noted in a report that there are various design choices for CBDCs, including: access (widely versus restricted); degree of anonymity (ranging from complete to none); operational availability (ranging from current opening hours to 24 hours a day and seven days a week); and interest bearing characteristics (yes or no). Furthermore, it points out that many forms of CBDCs are possible, with different implications for payment systems, monetary policy transmission as well as the structure and stability of the financial system.

Although CBDCs will probably not function precisely like paper notes or bitcoin, they will hold some digital features similar to physical cash. Assets will be easily transferable between entities and carry the same value in third-party wallets or platforms.

These properties also apply to their storage; CBDC users will store the tokens in their digital wallets and use the assets wherever they go. Citizens will most likely need to open an account with their central bank affiliations, but storage options will vary from mobile to desktop, online and offline anywhere on the planet.

With CBDCs, local or international transfers can occur almost instantly and require much lower fees than the traditional system. It will drastically minimise the task of verifying funds or risk-monitoring in each banking platform, since CBDCs are the actual fiat currencies in digital form.

Reducing fees at faster transfer rates will also promote economic growth and benefit lower classes through low payment fees and higher accessibility to funds.

Since CBDCs are issued through central banks and available to use through digital wallets, the unbanked may access and transfer their funds without the need for private bank accounts, which are often not at their disposal.

It will also benefit the underbanked through higher access to financial services with more straightforward frameworks and faster KYC. M-Pesa, a P2P payment platform released in Kenya, is a good example of such inclusion. Released in 2007, M-Pesa promoted easy payments and transactions without the need for private bank accounts. As a result, Kenya`s access to formal finance grew from 14 per cent in 2006, to 83 per cent in 2019.

Also, digital fiat creates more significant obstacles to illegal activities as physical cash allows funds to be hidden and transferred outside of surveilled financial systems.

CBN’s e-Naira Technical Partner

Bitt is a leader in the CBDC industry, with subject matter experts at the intersection of technology and policy. The company deployed its flagship product in regulated, collaborative, multi-stakeholder environments, including a live CBDC in four Caribbean countries, and digital currency deployments in Barbados and Latin America.

THISDAY findings also revealed that the Bitt DCMS for Eastern Caribbean Central Bank was vetted by the International Monetary Fund (IMF) and World Bank.
– Thisday

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