In recent years, money has been reborn in different ways, with crypto and central bank digital currencies (CBDC) being some of the reincarnates. Crypto made its way into the financial system in 2012. Gradually, it spread and is now used globally despite some governments’ efforts to ban the coins. CBDC has also dominated the financial plans of many world economic superpowers due to growing digitization trends and governments hope this would overthrow cryptocurrencies or operate side by side with it. A digital currency holds many promises including ease in transaction and monitoring of financial activities. This increased government monitoring will also serve to reduce financial crimes and the burden placed on regulatory technologies. Many believe that it will make the government regulate how capital is distributed.More than 40 world governments have begun work on developing their CBDC. China, the European Union, the United States, and the United Kingdom are some of the economic giants in a race to launch their digital currencies with the Bahamas being the first to officially roll out the Sand dollar, which is the digital version of the Bahamian dollar. Last week, the Nigerian Central Bank through its governor, Godwin Emefiele, announced that it would be launching the digital naira, following its ban of the cryptocurrency blockchain earlier this year. The announcement came during a Monetary Policy Meeting which was held in Abuja.
While it is important for governments and financial firms to prepare for a shift in the use of money, it is also imperative to make the leap in good preparation. Which leaves one asking: Is Nigeria ready for a digital naira?
Challenges Confronting Digital Nigeria Project
A digital naira in the most populous African country and the largest market in the continent is a bold move but not the best move given the nation’s current predicament, which began since the present administration. Insecurity, and the deteriorating state of infrastructures caused by terrorist groups and insurgents, and neglect on the part of the government have become the greatest nightmare of the country making Nigeria an economically unsafe haven.
As is expected, no economic activity can thrive when there is a breakdown in law and order. International investors have been driven away, economic activities within the country have been disrupted, inflation is reigning high and the country’s GDP has fallen drastically. Nigeria is experiencing not just capital inflation due to capital flow reversal but also stagflation, an economic situation that arises due to high inflation, lack of economic growth, high unemployment rate, and contracting GDP all at the same time.
What Do We Know About Digital Naira
Details of the proposed digital naira remain unknown at large except for the promise made by the CBN Emefiele that Nigeria too will have a digital currency. The announcement was made in response to the plunge in the crypto prices and the earlier decision of the CBN to ban crypto transitions in Nigerian banks. Mr. Emefiele again restated the government’s stance against the blockchain and the insecurity of the transactions while adding that “no responsible central bank will support crypto.”
He said: “I have heard about digital currency. We are working on it. We have set up a committee in CBN and I can assure everybody that digital currency will come to life even in Nigeria.”
Left for the public to speculate are other details of the project like when it all began, the current state of the project, the timeline for the trial, and rollout of the digital currency, the institutions involved in the project and how the fiat and digital naira would inter-operate. Would everyone need to have a direct CBN wallet in order to access the digital naira? What would become of people in the rural regions with no mobile access or connectivity and how will the CBN hope to train the illiterate communities on the use of the digital naira? These are issues and questions that only time will address.
What Initial Steps Should the CBN Take?
As is to be expected, a CBDC is unavoidable but the Nigerian government must ensure an economic ecosystem that will allow it to thrive. The first step to remedy the Nigerian economy would be taking decisive action towards insecurity in the country and combating insurgent groups.
Devaluing the dollar in favor of naira is also necessary. The government should aim to boost consumption, increase investment, and diversify the base of the Nigerian economy through foreign exchange restrictions for the importation of foreign products that have locally produced alternatives.
The African Union (AU) can also work together to develop a unified digital currency that would be strong enough internationally to be pegged against the dollar or euro. This will reduce the cost of Nigeria using loans from foreign countries to develop digital naira which would only serve to pile up the country’s debt status. Instead of using the exorbitant amount of money to develop a digital currency, Nigeria can use the funds to build an industrial system that will create employment and reduce dependency on foreign aids.
A digital currency is inevitable given the continual shift in global digitization but Nigeria needs to put some factors in place before embarking on that project. Except these factors are set right, a digital currency project in Nigeria will only amount to chasing the winds.