In the next 24 months, the Central Bank of Nigeria will explore the possibilities of stablecoins, investigate the use of blockchain technology for a Central Bank Digital Currency (CBDC) and examine regulatory requirements for Initial Coin Offerings (ICOs).
Exploring Stablecoins
The Central Bank of Nigeria’s policy document, Nigeria Payments System Vision 2025 (CBN), highlights the exploration of stablecoins, investigation of blockchain technology for a CBDC, and examination of regulations for ICOs as main points. The 83-page document delves into the various impacts on the current payment ecosystem, with blockchain-based systems as the main focus.
The document explores the effects of blockchain-based CBDCs and lists 11 potential advantages of using this technology, including managing cash costs, fighting counterfeit currency, providing clear transparency, enhancing logistics, and increasing payment efficiency.
The Central Bank of Nigeria believes that the ability to monitor and adjust a CBDC can enhance monetary policy by providing more control over the value of the currency. Additionally, the bank highlights that the use of a CBDC could aid in monitoring and preventing illegal activities such as tax evasion, money laundering, and other financial crimes.
Greater Financial Inclusion
Finally, the CBN states that the implementation of a CBDC could lead to greater financial inclusion, economic growth, innovation, and efficiency by fostering competition among retail payments products offered by current financial institutions. They have identified that a CBDC solution could be implemented in Nigeria within a time frame of three to five years.
The Central Bank of Nigeria is also closely monitoring stablecoins, as the use of these fiat-backed cryptocurrency tokens becomes more prevalent globally. According to the CBN, there is a need to establish a regulatory framework for the introduction of stablecoin offerings in Nigeria.
Since October 2021, Nigeria has been testing a government-issued digital currency, eNaira; however, the project has had difficulty gaining acceptance among its citizens. According to a Bloomberg report from October 2022, eNaira adoption was at 0.5% of the population. Despite eNaira’s lack of traction, there is growing interest in cryptocurrencies among Nigerians, as evidenced by Google search data in mid-2022.
Reacting to Nigeria’s Slow Adoption
Crypto publication Cointelegraph spoke with Adesoji Solanke, Renaissance Capital’s fintech, and banks director, to learn more about the desire for cryptocurrency trading in Nigeria and the apparent low adoption rate of the government-issued eNaira pilot.
Solanke shares similar observations, noting that despite the efforts of local banks to promote the eNaira pilot to their customers, there has not been significant interest shown by Nigerians.
“There’s been no mass adoption of the eNaira in the country just yet on the consumer or merchant sides of the payments equation.”
Solanke also stated that the increasing adoption of cryptocurrencies in Nigeria is driven by their cross-border functionality as well as the speculative capital gain opportunities they provide. He believes that determining whether eNaira will be widely used in Nigeria is a more complex assessment that will necessitate the alignment of a number of factors.
According to Solanke, for eNaira to become widely adopted, there needs to be a significant increase in the number of consumers downloading and funding the eNaira wallet. Additionally, the eNaira wallet must offer multiple and superior use cases that would appeal to customers, merchants, and other participants in the financial ecosystem. To facilitate adoption, merchants must have a payments solution that is linked to eNaira, which could be made possible through the use of contactless devices that can read the wallet via smartphones or QR codes or USSD.
Solanke also believes that clear incentives must be provided to each customer segment to adopt eNaira, such as zero or low transaction fees for peer-to-peer or merchant transactions, and functionality that extends beyond traditional financial services.
In 2021, the Central Bank of Nigeria took a strict stance against the cryptocurrency industry, effectively banning local banks from providing services to cryptocurrency exchanges in the country. However, about 18 months later, local media reported rumors of a potential change in policy, in the form of an amendment to existing laws that would acknowledge cryptocurrency as an investment capital.
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