The federal government has said that Nigerian banks and other fintech companies are set to launch the cNGN stablecoin on February 27, 2024. The stablecoin backed by the Central Bank of Nigeria (CBN) will be pegged 1:1 to the highly unstable naira.
The naira is currently the worst-performing currency on the African continent, and the third worst performing currency in the world.
According to a post from Dayo Olusegun, an aide of the Nigerian President on social media, the cNGN will allow users to transact anywhere in the world using the naira. Users can purchase and sell goods at the official CBN rate.
The stablecoin is supposed to eliminate the traditional challenges of currency conversion and hefty international transaction fees.
The statement also notes that cNGN is similar to other stable coins like USDT and USDC and will join other currencies that can be used to trade from any part of the world.
The cNGN, however, may be similar to the USDT as a stablecoin, but the latter is pegged to the US dollar which is very stable. The naira, on the other hand, is very unstable.
“The stablecoin we need is a stable naira to the USD,” said Tayo Oviosu, co-founder and CEO of Paga Communications.
A stablecoin is a cryptocurrency whose price is pegged to a reference asset, for instance a fiat currency, a commodity, or even other cryptocurrencies. The peg to a low-volatility asset is meant to keep the value of stablecoins “stable”, unlike I backed cryptocurrencies, which are highly volatile.
For instance, the value of USDT is pegged to the US dollar. What this means is that Tether should be unaffected by the volatility that can so dramatically impact the values of other cryptocurrencies like Bitcoin (BTC).
By pegging the cNGN to the naira, which volatility is quite unpredictable at the moment and with no guarantees of stability in the near future, the financial institutions behind it are exposing the investors to risks.
“The cNGN is part of the Central Bank’s efforts to ensure the Naira becomes a stable currency that can be relied on by investors and users across the globe,” the statement read.
The cNGN is also being pushed as a replacement for the eNaira which gulped billions of investment from the Central Bank of Nigeria under Governor Godwin Emefiele.
“Unlike the eNaira, which is developed solely by the apex bank, the cNGN is managed by a consortium, the Africa Stablecoin Consortium (ASC),” the post noted.
The cNGN is currently interoperable with strategic blockchains like Bantu and Binance Smart Chain, according to experts.
