The Central Bank of Nigeria has recently announced its readiness to launch its own Central Bank Digital Currency (CBDC). Nigeria’s financial services playbook enters the uncharted territory of digital currencies which is gaining popularity across National regulators across the globe, though with few interests yet, in Africa.
The Central Bank of Nigeria (CBN) planned Oct 01, 2021 as go-live date for the e-Naira. Meanwhile, Nigerian neighbour, Ghana takes the lead as the small West African country announced in the beginning of the month of September, 2021 to start piloting its own version of the digital currency– the e-Cedi.
Many reasons have been put forward as to why Central Banks are exploring issuance of own digital currency which could be for reducing cost of managing paper currency, leverage new emerging digital technologies, improved digital readiness landscape, maturing identification registries, drive financial inclusion, easier tax and revenue administration etc.
The use the CBDC highlighted by the Central Bank of Nigeria is a replica of current digital wallet offerings in the marketplace aside some slight restriction of not allowing a cash-out at Merchant location. This, according to Mr Okoegwale, can’t be enforced since Merchants can treat the transaction as a purchase and hand over cash to customer.
Touching on the security and the risk involved, the Governor of the Central Bank, Godwin Emefiele, stated that more security features are added to take care of perceived disruption that may occur if a CBDC replaces or come into play alongside licensed market operator’s digital offerings.
Emmanuel Okoegwale, a digital financial Specialist punching hole into the supposed security features stated that digital wallets by their own very nature, enhances systemic risk. He explained that, is due to velocity of money and transactions which can have a significant impact on the entire financial services ecosystem if there is, spill over effects from significant failure arising from a mass-market financial services system which the CBDC is positioning to become.
He further suggested that technology capture arising from Vendor lock-in and concentration risk should be seriously evaluated as new technologies evolve and most likely, the service will be provided by a single technology firm.
However, the analyst observed that the business case for the deployment of CBDC is compelling for the regulator but market operators will need clarity with the alignment and avoid pit holes in the implementation of the deployment if not, collaboratively approached.
Meanwhile, Mr Okoegwale noted that the review of Nigeria’s plan reveals that the e-Naira is open loop system, which connects to switches. Therefore, licensed market operators can join the scheme. He thus, noted that it’s a digital representation of the country’s currency. It can be accessed by everyone for all permissible activities that Naira can be used for.
Moreover, the governor of Nigeria Central bank noted that the benefits of financial services digitization is immense for the nation. The Banks will play a significant role in the success of the deployment, the system will allow existing infrastructure to keep serving the market.
However, if the above is the case in the next few months, Fintech investors and funders may go into ‘watch & wait status’ to better understand the impact of full deployment of the e-Naira on the financial sector.
