On February 5, 2021, the Central Bank of Nigeria (CBN) for the third time in four years, warned against cryptocurrency operation in the country’s financial space, tagging it illegal. It also ordered commercial banks to close any of such account in their possession, warning them of severe penalty should they breach its directive. It could be recalled also, that the Bank in 2017 and 2018 respectively, warned that transacting in crypto-currency is illegal in Nigeria’s financial system. However, its last pronouncement generated mixed reactions from financial technocrats, bureaucrats, academia, and even politicians.
Cryptocurrency otherwise called 21st century unicorn, the money of the future or freedom money is an internet-based medium of exchange that uses crypto-graphical functions to conduct financial transactions, leveraging blockchain technology to gain decentralisation, transparency, and immutability. Its most important feature is that its operation is not controlled by any central authority or regulator. Its decentralized nature as a blockchain immunes it from government control and interference.
However, the turning around posture of most countries in the world that hitherto condemned crypto-currency operation in their jurisdictions to launch their own Central Bank Digital Currencies (CBDC) is a welcome development; a reality that cryptocurrencies are indeed the future money.
Currently over 70 countries around the globe are seriously tinkering or at the verge of launching its CBDC. The Central Bank of Nigeria (CBN) is one of them. A volte-face some would say, but that would not be the true position of the Bank. The CBN had justified why it banned cryptocurrency operations in Nigeria’s financial system. Among reasons it adduced was that, they were largely speculative, anonymous and untraceable, and had increasingly become a vehicle for money laundering, terrorism financing and some other crimes. CBN’s reason was to protect Nigeria’s financial system from risks inherent in crypto assets transactions, which indeed had escalated because they are issued largely by anonymous entities and secured by cryptography more so that, Nigeria’s situation is peculiar with insecurity challenge and banditry.
As CBN prepares for the launch of its digital currency, e-Naira, on October 1, 2021, it has kicked-started the process with the selection of a technical fintech partner, Bitts Inc, that came tops in a rigorous selection process, and in accordance with the Nigeria Public Procurement Act. 15 companies bided and were evaluated in a selection process that involved 8 top executives of the Bank, a deputy governor and 7 departmental directors. Competence among other criteria considered were: 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 and implementation experience.
With technological innovations occasioned by the outbreak of COVID-19 pandemic and various lockdowns imposed by many countries in the world, working remotely through electronic means became the new normal.
If the CBN is to achieve its financial inclusion target, embracing, launching and operating digital currency is thus in tandem with growing world reality. It is also commendable, and in recognition of the desire of Nigeria’s teeming youth population for this new normal electronic way of transacting businesses, away from the unregulated Bitcoin or Ethereum.
The difference between cryptocurrency and digital currency is that the latter would not be decentralised but a digital token, issued by the monetary authority. It would be regulated and backed by the nation’s monetary reserves, with certain features as the physical cash, as well as making asset transfers between entities seamless with same value in third-party wallets or platforms.
When it becomes operational, local and international transfers can take place almost immediately, requiring lesser fees than the physical or traditional system. The value of the digital currency is backed by fiat currency (Fiat currency is a legal tender whose value is backed by the government that issued it. So the Naira is fiat money, just like Pounds, Euro, and Dollars, etc, that are currencies of countries in the world). This is the difference between virtual or cryptocurrency.
CBDC users only need to store the token in their digital wallets and use the assets wherever they go, after they may have opened an account with the central bank through any of the deposit money banks (as it is the case with Nigeria).
For the CBN to have picked Bitts, who is adjudged a leader in CBDC industry by the Bretton Woods Institutions – IMF/World Bank, is another milestone in the Emefiele led-CBN’s promise to run a people-focused Central Bank.
Worldwide, Bitts Inc. is synonymous with efficacy, providing users the interface for enterprises, merchants and retail consumers with enabled variety of actions to the satisfaction of every user in managing digital currency transactions and services. The CBN therefore has done the financial system good with its choice, picking Bitts among other highly competitive bids.
Osita Nwanisobi, the Bank’s Director of Corporate Communications, while defending the choice said it was based on the fact that the company was the first fintech company to digitize a national currency on a blockchain, creating a synthetic CBDC with the support of the Governor, Central Bank of Barbados and the country’s Minister of Finance.
Earlier in his admonition to Nigerians, Mr. Godwin Emefiele, the Governor of the Bank urged citizens’ support for the project as he expressed optimism on the e-Naira’s capacity to stimulate cross-border trade, accelerate financial inclusion strategy, as well as enhance cheap and faster remittances inflow. Continuing, Emefiele said the e-Naira would operate as a wallet against which customers can hold existing funds in their bank accounts. More importantly he said, it would help in improving monetary policy effectiveness, leading to easier and more targeted social interventions.
Ademola Oyetunji writes from Abuja