The implications of adopting a digital naira in Nigeria
Adopting a central bank digital currency will put Nigeria in the limelight as either a trailblazer or a failed example
Source: nairametrics.com
Africa has always been known for being late in implementing technological innovations into its economical system.
But with the gradual rise of Blockchain technology, African nations are taking bold steps in becoming some of the first embracers of this new technology in their economy. El Salvador is currently working on making cryptocurrencies their legal tender, and most recently Nigeria announced it will be adopting Blockchain technology by implementing the use of a digital naira.
But concerns are in the heart of most Nigerians seeing how the current Nigerian political system is corrupt. Some of these concerns are captured in questions such as:
Will the Blockchain-enabled digital naira curb issues of fraud and money laundering? Will it be transparent and open like most cryptocurrencies network and also can a person retain anonymity?
The major interest of most persons is voiced in the question - In what way does the digital naira benefit the masses and improve the standard of living?
Well we must understand the concept of a digital currency issued by a central bank and progressively answer these questions.
What is a CBDC?
A CBDC (Central bank digital currency) is the virtual form of the fiat currency of a country issued by its central bank running on a blockchain-based system.
CBN's digital naira: Potential trailblazer or failed example in the making?
Currently, no country has fully implemented the use of a CBDC as plans and considerations are still being made. However, the Central Bank of Nigeria (CBN) has taken a bold step by announcing that it will be launching its digital naira in the month of October. This decision must have been made after thorough planning and considerations as the challenges of adopting a digital naira are quite much, especially in a country like Nigeria.
Although, the model CBN intends to use in implementing this digital naira has not been clearly stated, but it will definitely not be decentralized like that of cryptocurrencies as administrative features like KYC (Know Your Customer) and AML (Anti-Money Laundering) cannot be achieved. This will defeat one of the strengths of most blockchain systems as the digital naira will be running on a private centralized blockchain, giving room for the possibility of a "central point of failure". However, talks are ongoing of a potential way of including banks in developing a Proof-of-Stake concept (talk for another day).
Source: researchgate.net
The Director, IT Department of CBN, Mrs Rakiya Mohammed stated that the digital naira will be like the third form of money in Nigeria to complement banknotes and coins but this might still pose a threat for banks.
If the CBN is to adopt a model where individuals and companies can directly hold accounts with CBN, then the digital has the potential to disintermediate banks and other digital payments platforms running in Nigeria. This means that bank deposits will reduce in turn reducing the rate at which banks lend loans - which is their major source of income. CBN might decide to also take on the responsibility of lending loans which is highly unlikely and might be met with some backlash as Nigerian citizens are quite aware of how slow the Nigerian government can be in its administrative duties.
Also, the digital naira, depending on CBN's model will increase transparency by bolstering system integrity to a large extent. Considering how transparent blockchain-enabled systems can be and the current state of corruption in Nigeria, most citizens will be happy about the digital naira but questions surround how the corrupt sect will receive it.
Source: ictworks.org
Financial enterprises in Nigeria at this stage should be brainstorming new business ideas and ways to be among the top earners upon the adoption of the digital naira.
Other potential challenges of the digital naira in Nigeria includes poor network connection, high data fees and poor power condition, as these are still critical problems in the country.
Potential benefits include transparency, cheaper cross-border payments, security and convenience.
Adopting a central bank digital currency will put Nigeria in the limelight as either a trailblazer or a failed example - seeing it will be like a guinea pig for most countries still considering whether or not to adopt a CBDC.
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