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On CBN’s drive for a digital naira

Everybody now talks about crypto currency and digital money.

Indeed, the world of finance is undergoing a remarkable metamorphosis, wherein lies the future of money and the innovation of global financial markets as we know it.

Over the years, money has been reincarnated in various forms since the abolishment of the barter system. The most recent forms of money besides fiat currency are crypto currency and central bank digital currency (CBDC). While CBDCs assume a more recent phenomenon, crypto currency has found its way into the global financial market space since 2012.

The popular Netflix series “Startup” also show credence to the space that digital currencies and the crypto share in today’s world of finance and investment. The movie features an ambitious young lady, Isabelle or Izzy, who worked extremely hard to launch her crypto-currency company, “GenCoin”, but failed her maiden attempt. The rest of the movie details her resilience towards establishing her brand, regardless of the various setbacks she encounters.

Owing to the volatile nature of the crypto-currency platform and the perceived use of the same to finance illicit activities, governments of various countries have discouraged users from trading Bitcoins, Dogecoins, and other crypto currencies. Algeria, China, Iran, India, Bangladesh, Ecuador, Nepal, Denmark, Morocco, Lybia and Saudi Arabia are countries with laws that out rightly prohibit crypto-currency trade in their countries. Nigeria joined the list just recently.

Shortly after the ban in Nigeria by the central bank of Nigeria (CBN), the apex bank governor, Mr Godwin Emefiele, announced that the country would soon launch its digital currency.

Speaking at an online news briefing, Rakiya Mohammed, an information technology specialist with the CBN, noted that the banking authority has been working hard to introduce its digital currency soon. She assured that the CBN is looking at different technology options and will engage various industry players in the pilot test of the digital currency.

Mohammed further informed that the central bank digital currency (CBDC), when launched, will help boost the transfer of remittances into the nation.

Before the pandemic struck, it is estimated that over US$5 billion in quarterly remittances flowed into Nigeria. Since the global health pandemic has been contained, the CBN has introduced programmes that would lure more international transfers into the system. Hopefully, the CBDC will help complement current policies and schemes towards increased foreign exchange inflow.

Furthermore, digital currencies are prefigured to be an effective solution to financial monitoring and reporting, often reducing the burden on regulatory technologies. With a more significant deal of ease in facilitating transactions on digital platforms, it is hoped that CBDCs will encourage more financial deals, which will be well monitored by the government to trace out illicit exchanges.

However, the decision of the CBN to launch its digital currency may seem a hasty one, as current economic realities suggest that the decision is, at best, premature.

While it is necessary to agree that owning a digital currency in an era of growing digitisation trend is a bold move by the government, it is equally important to determine if this is the best way to go, considering the nation’s current predicament.

Nigeria is currently plagued with multifaceted challenges that range from insecurity, public and private corruption, deterioration of infrastructure by terrorist groups and insurgents, and government undue neglect of the state of affairs of the nation.

Admittedly, these challenges make the country economically unsafe. Therefore, the government’s focus should be channelled more towards stabilising the economy.

As a result of the fast-rising state of economic deterioration, foreign investors have been forced to exit the Nigerian market space. Neighbouring countries have continued to enjoy divestments from Nigeria. New investments have found their way to other African countries like Ghana and South Africa. Nigeria has been left with no choice but to cope with the current status quo hoping that the few available investors will not go.

In addition to the economic concerns raised, several questions are being asked regarding the launching of the CBDC in the country. First, not much detail has been made public about what the new digital currency platform will entail. Second, it is also uncertain about how fiat-based paper currency and digital currency will co-operate.

Available infrastructure to cater to the deployment of the new e-currency is another area of concern, and sceptics are unsure about the ability to secure and sustain enough power, internet access, and availability to champion this innovation.

Since Nigeria still ranks among the countries with high economic and social inequality, financial inclusion strategies, especially for the poor, will be needed to integrate more users into the digital fold. In addition, illiterates must be trained on using sophisticated phones and devices to benefit from using digital currencies.

Also, the recent policy by the CBN, which has mandated an upward review of USSD charges by banks on users, may discourage any ongoing financial inclusion strategy since fewer transactions, especially by the society’s low-income bracket, now occur at the new rate.

Conquering a largely informal economy whose transaction mode is cash-based will be a tough battle. Settlement of prices, debts and other transactions in Nigeria’s ubiquitous informal market, which has been basically by cash, may open up very slowly to digital mode of payments when the platform becomes operational.

To enjoy the sustainability and operational fluidity of the new digital currency platform, policy makers must commit to creating an economic ecosystem that will allow the latest digital innovation to thrive.

Furthermore, the government must endeavour to run the e-currency platform from generated revenue and not through debts to preserve the integrity of the local currency and reduce the fiscal burden that the country currently faces.

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