The Apex Bank of Nigeria isn’t left out as other Central Banks around the world are looking into creating digital currencies. This might be a development from the inherent threats posed by digital currencies to fiat currencies.
Just last week the Central Bank of Nigeria announced plans to incorporate the Central Bank Digital Currency (CBDC) to replace paper notes.
Speaking on this unexpected development, Rukayat Mohammed, the Director of Information Technology (IT) of the apex bank mentioned that Nigeria seeks the possibility of exploring CBDC
“Very soon we would make an announcement on the date for the launch and by the end of the year, we should have the digital currency. We would possibly launch a pilot scheme in order to provide this kind of currency to the populace”, Rukayat said.
However, looking at the developments that have surrounded the CBN in relation to the shutting down of cryptocurrency exchange bank accounts, we are curious about what the CBN is up to.
So we had a chat with Adedeji Owonibi, the Founder of Convexity, who with his expertise in financial forensic analysis and cryptocurrency intelligence took us through what the CBDC launch means to Nigeria.
Can the Federal Government be trusted on this?
Permit me to paraphrase the question, more likely to be can the Naira be trusted? Yes, the Central Bank Digital Currency is clearly going to be trusted, because it’s still the same thing, just you know, the apex bank is exercising the power they do have with the CBN act to be the sole printer and minter of money used within that jurisdiction that is known as the legally tendered currency in that country in this case Nigeria
So, if we trust Naira, because, with Naira, we pay our school fees, we use Naira for religious offering and all sort of things we do today.
Exactly the replica of that will happen. Now, the question probably would have come up from the issue of decentralization, which is the main central promise of blockchain and they say if you don’t trust people, you can use blockchain to enforce transparency, but they are not saying we want you to trust us for more transparent money and all that, they’re just saying that the Naira we used to have we want to digitize.
So nothing really changes, it is central, it has no resemblance with cryptocurrencies because it works on a decentralized network, but this one is going to be a centralized network that is owned, controlled and printed by the Central Bank. So it’s still the same thing with the Naira we use today.
Can we say this development is CBN’s response to cryptocurrency’s threat to fiat currency?
It is a threat to all governments in the world. We did a publication on our website some days ago, where we asked “Can the CBN legally issue a Central Bank Digital Currency?”
We clearly said ‘No’, they don’t have legal backing to actually do it even if they want to. And why did we say that?
We’re resting on IMF’s report that says over 80% of Central Banks around the world cannot even issue CBDC For these two reasons:
One is that the Central Bank Enabling Act like in the case of the Central Bank of Nigeria act does not in any way recognize anything like a digital or cryptocurrency.
The CBN only knows about the issuance of coins and paper, so for them to be able to do anything different from what is embedded in the act, they have to go back from the act of the National Assembly to redo that.
So has that been done? The answer is no. So the second reason is actually based on the technical capacity of Central Banks around the world as the IMF also found that 80% of these Central Banks do not have the capability on their own to begin rolling out CBDC.
The timing on the Central Bank is a bit dicey. Well, let’s keep our fingers crossed, probably there are some inner capabilities we are not aware of, and they want to quickly rush it by December, and that to me is not a feasible date.
China for instance is still doing a test run since 2013, So if China with all its technological capabilities has not recorded success yet.
I don’t see why the Central Bank of Nigeria is rolling it all out in December, except they’re probably not going to be building from the bottom-up and they are just going to be plugging into some already made solutions.
So if this is implemented by the intended date how do you see it influencing the Nigerian economy?
Yes, for me, it’s going to make trade more fluid, make a transaction faster, is going to enable easy trades within ourselves, including the foreign people that want to use it because it can easily be transferable.
I think the other aspect will be censorship, whether the government will be tracking everything you buy is another aspect that a lot of people have been asking me as a Compliance Specialist and somebody that is into blockchain and regulations and all those are investigative part of it.
All to make sure that the privacy of people is ensured, even when the Central Bank rolls out the currency.
China just did this and they did not promise their citizens any privacy, they know they are going to see their citizen’s transactions and everything that they do with their money. So for Nigeria, we don’t know because we are not a totalitarian community, we are a democracy.
So we are not too sure of how the Central Bank will ensure that privacy for individuals are guaranteed which is a right for anyone, except there is a reason to unmap, whoever is doing it to see if there’s any legality.
So those are grey areas that we’re still going to see how it’s going to work was by and large is going to be accepted in my view.
El-Salvador recently adopted Bitcoin as its legal tender, could Nigeria have taken the same path?
You know, it takes very innovative leaders. Leaders with high foresight having an understanding of the technology and its trajectory for them to do that.
Most countries, we beg to disagree, but I think a lot of countries will follow suit. We see discussions happening in I think in Jamaica, Belarus and some other countries are trying to take the same path in making it their national currency because of stability.
IMF has however warned about the volatility of making that currency a national currency, and IMF is in discussion with Belarus on this.
So far, Nigeria, I don’t see Nigeria in that path, because we need leaders with an understanding of this technology, a situation where the CBN Governor refers to those who trade in cryptocurrency as criminals.
Can the government guarantee privacy?
The only part that we are concerned about is the interplay of privacy and censorship around this proposed digital currency.
At which point, do you ensure that compliance is happening? At which point do you stop just trailing and monitoring your citizen to see what they spend their money on?
So that privacy point and the break in reconciling these two gaps, you know, ensuring there’s compliance and ensuring the privacy of people is a dicey grey area that we want to get clarification on and for the Central Bank to give confidence to that money, remember that this CBDC is not coming in isolation as it is coming into an economy where you have over 8000 cryptocurrencies playing and people are transacting with their choice cryptocurrencies.
So for me as a Nigerian to say I’m going to transact with Naira, there must be some incentive to citizens to use it.
And so we don’t know what incentive the central bank wants to bring. Maybe they want to give some discount where you use the Naira as a digital currency. We are just waiting to see more details about the rolling out of this CBDC, which we’re still looking to get insight into.
Featured Image: Adedeji Owonibi, Founder and COO, Convexity
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