Intense interest in cryptocurrencies, such as the bitcoin, as well as the Covid-19 pandemic has sparked debate among Central Banks globally on whether they should issue digital currencies of their own. Advocates argue that central bank digital currencies (CBDCs), can make cross-border transactions easier, promote financial inclusion and provide payment system stability.
The Central Bank of Nigeria (CBN) on Thursday, 10th of June 2021 said its digital currency may be launched by the end of 2021. Rakiya Mohammed, an information technology specialist with CBN, made the disclosure at an online news briefing at the end of the Bankers Committee meeting. According to her, the apex bank has for over two years been exploring the technology and has made tremendous progress. “Before the end of the year, the Central Bank will be making special announcements and possibly launching a pilot scheme in order to be able to provide this kind of currency to the populace,” she said.
Mohammed said when eventually operational, the currency would complement cash notes. According to Muhammed, another reason the apex bank plans to come up with digital currency is to make remittances travel easier from abroad to Nigeria. Many governments including the UK, Sweden, Hong Kong, Australia and the US are all exploring various ways digital currency could work. The European Central Bank is working with the European commission in experiments to consider the benefits of a digital Euro. It will decide whether to launch the digital Euro in Mid-2021.
Sweden, which has one of the lowest usage rates of cash, launched a pilot programme for its digital currency known as e-Krona in 2019. And in Hong Kong, an experiment using digital currency to settle cross-border transactions between Thailand is being expanded.
Mohammed stated that “In terms of human and institutional engagements, Nigeria is certainly behind the scale and the scope of what China, Singapore, Europe and other individual nations are doing. It’s however not about doing it first, but rather doing it right.”
How would it work?
Central bank digital currencies would operate just like the money you see when you check your bank accounts online. The ‘digital Naira’ would be issued by the Central Bank of Nigeria and held directly in citizens’ digital wallet. Instead of printing physical money, the CBN would use electronic coins or notes. The digital wallet would be accessible through smartphones.
The government/ monetary authorities could also decide whether they want citizens’ to create direct accounts with the CBN or operate the digital currency through Deposit Money Banks (DMBs) or Commercial banks. This is going to be the year in which the CBN will engage with the public actively. We have a functioning financial system and banking system. However, all that is required is a careful design of the digital Naira such that the monetary authorities/government don’t create something that will undermine this very healthy market-based function.
The CBN is thus looking into creating a digital currency that will help promote the cashless policy of the apex bank, although the high illiteracy level of the nation could pose a hindrance to the mass adoption of CBDC in the country. The apex bank should also be ready to undergo awareness programs to ensure that the CBDC can function for all classes of Nigerians.