The Nigerian central bank will explore the potential of stablecoins, the adoption of blockchain technology to drive a central bank digital currency (CBDC), and regulatory considerations related to initial coin offerings (ICOs) over the next two years.
These are the key points of a policy paper titled Nigeria Payments System Vision 2025, released by the Central Bank of Nigeria (CBN). The 83-page document addresses a variety of implications for your existing payments landscape, with blockchain-based systems coming to the fore.
The paper delves into the implications of blockchain-based CBDCs and outlines 11 potential advantages of such an offering, including cash cost management, combating counterfeit currency, clear audibility, logistical improvements, and payment efficiency.
The central bank of Nigeria believes that monetary policy can be improved through monitoring and adjustability of a CBDC, allowing for better control over the value of the currency. The Bank also notes that it could better monitor and control tax evasion, money laundering, and other illegal activities through a CBDC.
Finally, CBN’s announcements enhanced financial inclusion and economic development, spurring innovation and efficiencies by driving competition among existing financial institutions’ retail payment products. A time frame of three to five years can be achieved to implement a CBDC solution in Nigeria, they said.
Stablecoins are also on the radar in Nigeria as fiat-backed digital currencies gain popularity in different countries around the world. The CBN cites the need to develop a regulatory framework to implement stablecoin offerings in Nigeria.
Related: Nigerians’ Passion for Crypto Stops at eNaira
The CBN takes a cautious view of ICOs, noting the “little appetite” to adopt existing ICOs given their “lack of regulation.” Despite this, the CBN identifies the role of ICOs as an asset class and sees potential in ICO adoption as a novel approach to raising funds for capital projects, peer-to-peer lending, and crowdfunding.
Smart contract functionality is another point of interest highlighted in the policy document. The CBN mentions the “tangible benefits” of linking the settlement to the transfer of ownership via smart contracts and the transfer of ownership of financial securities or completing business transactions.
The country has been testing its CBDC, eNaira, since October 2021, but the project has struggled to gain traction with citizens. A Bloomberg report in October 2022 said that the use of eNaira is only 0.5% of the country’s population. Meanwhile, Nigerians are becoming increasingly interested in cryptocurrency, and Google search data for mid-2022 highlights the appetite for cryptocurrency in the country.
Cointelegraph reached out to Adesoji Solanke, director of banking and fintech at Renaissance Capital, to find out about the appetite for cryptocurrency trading in Nigeria and the lack of adoption of government-issued eNaira.
Solanke shared the same sentiments, noting that Nigerians have not shown much interest in eNaira, despite local banks marketing it to their clients.
“There hasn’t yet been mass adoption of eNaira in the country on the consumer or merchant side of the payments equation.”
Solanke said that the growing adoption of cryptocurrencies is driven by their cross-border functionality and the speculative option for capital gains they provide. Weighing whether eNaira could become ubiquitous in Nigeria is a more complex consideration, according to Solanke.
First of all, more consumers would need to download and fund the wallet. The eNaira wallet should provide multiple and superior use cases that appeal to customers, merchants, and other participants in the financial system. Merchants need a payment solution connected to eNaira and powered by contactless devices that can read the wallet via smartphone, QR code or USSD code.
Solanke also believes that there must be more explicit incentives for each sector to adopt eNaira. Incentives such as zero or low transaction fees between peers or merchants and functionality beyond immediate financial services could drive adoption.
Stablecoins are another complex issue given the potential risk that their increased use “undermines the effectiveness of monetary policy,” Solanke said. It is one of the reasons why CBDCs could be a major issue in economic developments in the medium term and why central banks may seek to create regulatory clarity for stablecoins.
The possible adoption and regulation of ICOs would also require the CBN and the Nigerian Securities and Exchange Commission to work together, as they would potentially be treated as securities or a new asset class.
The Central Bank of Nigeria took a tough stance towards the cryptocurrency sector in 2021, effectively banning local banks from providing cryptocurrency exchange services. Some 18 months later, local media reported rumors of a policy change in the form of a possible amendment to existing laws that would recognize cryptocurrency as capital for investment.