Nigeria’s central bank will explore the potential of stablecoins, the adoption of blockchain technology to power a central bank digital currency (CBDC) and regulatory considerations related to initial coin offerings (ICOs) over the next two years.
These are the key findings of a policy paper titled Nigeria Payments System Vision 2025, published by the Central Bank of Nigeria (CBN). The 83-page document addresses a variety of implications for the existing payments landscape, with blockchain-based systems in the spotlight.
The paper investigates the implications of blockchain-based CBDCs, outlining 11 potential advantages of such an offering, including cash cost management, anti-counterfeiting, clear audibility, logistical improvements and payment efficiency.
Nigeria’s central bank believes that monetary policy can be improved by monitoring and adjusting a CBDC, allowing better control over the currency’s value. The Bank also notes that it could better monitor and control tax evasion, money laundering and other illegal activities through a CBDC.
Ultimately, the CBN promotes improved financial inclusion and economic development, and encourages innovation and efficiency by increasing competition among financial institutions’ existing retail payments products. A timeframe of 3 to 5 years is recognized as a viable time frame to deploy a CBDC solution in Nigeria.
Stablecoins are also on the radar in Nigeria as fiat-backed cryptocurrency tokens are adopted in different countries around the world. The CBN cites the need to develop a regulatory framework for the implementation of stablecoin offerings in Nigeria.
Related: Nigerians’ passion for crypto is stopping at eNaira
The Central Bank of Nigeria maintains a cautious view of ICOs, highlighting ‘little appetite’ to adopt existing ICOs due to their ‘lack of regulation’. Despite this fact, the CBN identifies the role of ICOs as an asset class and sees potential in the adoption of ICOs as a new approach to fundraising for capital projects, peer-to-peer lending or crowdfunding.
Smart contract functionality is another point of interest highlighted in the policy document, with the CBN highlighting the ‘tangible benefits’ of linking settlement to the transfer of ownership via smart contracts, as well as the transfer of ownership of financial securities or the conclusion of commercial business transactions.
The country has been piloting a government-issued digital currency, eNaira, since October 2021, but the project has struggled to gain traction from its citizens. A Bloomberg report in October 2022 pegged adoption at just 0.5% of the country’s population. Meanwhile, Nigerians are becoming increasingly interested in cryptocurrencies, with Google search data from mid-2022 highlighting the appetite for adoption in the country.
Cointelegraph reached out to Adesoji Solanke, head of fintech and banking at Renaissance Capital, to unpack the appetite for cryptocurrency trading in Nigeria and the reported lack of adoption of the government-issued eNaira pilot.
Solanke shared the same sentiments, noting that Nigerians have not shown much interest in eNaira despite local banks marketing the pilot to their customers.
“There has yet to be mass adoption of eNaira in the country on the consumer or merchant side of the payments equation.”
At the same time, Solanke said that the growing adoption of cryptocurrencies has been driven by their cross-border functionality, as well as the speculative capital gain optionality they provide. Assessing whether eNaira could become ubiquitous in Nigeria is a more complex consideration, according to Solanke, requiring a combination of factors to work together.
First, more consumers would need to download and fund the wallet. The eNaira wallet must provide multiple and superior use cases that appeal to customers, merchants and other participants in the financial ecosystem. Merchants need to have a payment solution connected to eNaira, which can be powered by contactless devices that can read the wallet through smartphones or QR or USSD codes.
Solanke also believes that there needs to be clearer incentives for each customer segment to adopt eNaira. This can be driven by zero or low peer-to-peer or commercial transaction fees and functionality that transcends immediate financial services.
Stablecoins are another complex topic, given the potential risk of their increased use “weakening the effectiveness of monetary policy”, as Solanke explains. It is one of the reasons why CBDCs could be a hot topic in monetary developments in the medium term and why central banks can look to create regulatory clarity for stablecoins.
The possible adoption and regulation of ICOs would also require the CBN and Securities and Exchange Commission of Nigeria to work together, as they would potentially be seen as securities or a new asset class.
The Central Bank of Nigeria has taken a stern stance towards the cryptocurrency sector in 2021, effectively banning local banks from servicing cryptocurrency exchanges in the country. Around 18 months later, rumors of a policy reversal were reported by local media in the form of a possible amendment to existing laws that would recognize cryptocurrency as investment capital.
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