The Central Bank of
Nigeria (CBN) has announced that it will launch the pilot scheme of its digital
currency (eNaira) by October 1, 2021.
Rakiya Mohammed, CBN director of information technology,
had disclosed this during a
private webinar with stakeholders on July 22.
She explained that the apex bank is still conducting
research on the Central Bank Digital Currency (CBDC) since 2017.
According to her, the project name is tagged ‘GIANT,’ while the eNaira will be operated on the Hyperledger Fabric Blockchain.
The Hyperledger Fabric is an open-source project that acts
as a foundation for developing blockchain-based products, solutions, and
applications. It uses plug-and-play components that are aimed for use within
private enterprises.
A CBN document seen answers pertinent questions about
Nigeria’s soon-to-be-launched digital currency.
WHAT IS A CBDC?
CBDC is a direct liability of the Central Bank that issued
it. It is not meant to replace cash and bank deposits but to coexist as an additional
form of Central Bank issued money.
CBDC is a digital representation of sovereign currency that
is issued by a jurisdiction’s monetary authority like the Central Banks.
It can be divided into two categories: retail and wholesale
CBDC.
A “retail” CBDC would be used as a digital extension of cash
by all people and companies, whereas a ‘wholesale’ CBDC could be used only by
permitted institutions as a settlement asset in the interbank market by
permitted institutions.
Retail CBDC is generally meant for the general public and
average consumers conducting daily transactions, while Wholesale CBDC is
suitable for exchanging and trading among central banks, and private banks.
IS IT SIMILAR TO CRYPTO SUCH AS BITCOIN, ETHEREUM?
CBDC is a direct liability of Central Banks and issued by a
monetary authority. It means that the apex bank can approve or override
transactions since it is in control of the infrastructure.
The digital currency will be backed by law to become legal
tender.
In contrast, cryptocurrency is private money with no central
authority. It is not a legal tender, and it is not a liability of the Central
Bank or any of its regulated institutions.
Unlike cryptocurrencies that operate via blockchain networks
in a decentralised way, a CBDC is a state-issued and controlled digital asset.
In February, the apex CBN issued a circular, directing
Deposit Money Banks (DMBs), non-bank financial institutions and other financial
institutions to close accounts
used for crypto transactions within their systems.
The apex bank insisted that transacting in cryptocurrencies
portend “risk of loss of investments, money laundering, terrorism financing,
illicit fund flows and criminal activities.”
HOW WILL CBDC BE ADOPTED?
The CBN document explained that the eNaira CBDC lifecycle
includes a 4-step process to full implementation and adoption.
The CBN is responsible for the design, creation and storage
of CBDC.
It would be distributed to CBDC to financial institutions
and licensed service providers who will, in turn, make them available to
individuals and businesses.
Transactions with CBDCs can either be online or offline.
Individuals and businesses will be able to transfer value in real-time via
existing and future payment channels (e.g. mobile).
The CBN will continue to monitor and maintain CBDC.
WHAT DOES CBDC MEAN FOR THE ECONOMY, GOVERNMENT?
The CBDC has the potential to reduce cash handling costs by
5 – 7 percent, deepening digital financial inclusion and promote the
development of e-commerce.
It would promote formal cross-border payments for efficiency,
convenience and affordability.
The CBDC would promote the digitisation of cash and the
development of e-commerce, as well as deepen digital financial inclusion.
Its potential benefits to the government include the
provision of a reliable mechanism to distribute fiscal stimulus to citizens.
The apex bank stated further that the eNaira would reduce
tax leakages due to tax evasion and illicit money flows. It is also expected
that the currency will improve cross-border trade, enhance financial inclusion,
remittance improvement, and others.
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