The Central Bank of Nigeria (CBN) announced in June that it will launch its digital currency by the end of 2021. To reaffirm this development, Rakiya Mohammed, CBN director of information technology, stated in a private webinar that the apex bank would launch its digital currency pilot scheme on October 1, 2021.
Central Bank Digital Currencies (CBDC) are becoming increasingly popular around the world. They are a response to the global rise of digital payment solutions and a component of various central banks' response to the influence of cryptocurrency in their respective countries.
Rakiya Mohammed explained that approximately 80 per cent of central banks worldwide are currently exploring the possibility of issuing their central bank digital currency (CBDC), and Nigeria could not afford to fall behind. The apex bank had been researching since 2017 regarding the development of a digital currency.
CBDC in Nigeria
Senator Ihenyen, president of the Stakeholders in Blockchain Technology Association of Nigeria (SIBAN), explained that CBDC comes in two varieties: wholesale CBDC and retail CBDC. This classification is based on the intended user. While retail CBDC allows the CBN and citizens to have direct financial relationships, wholesale CBDC lets banks and financial institutions act as intermediaries between the CBN and the citizens. The new Nigerian digital currency will operate on a hybrid system, which is a combination of both. The digital naira would be issued by the Central Bank of Nigeria and held directly in the digital wallets of Nigerians. CBDC, like fiat currencies, would be recognized as a form of payment and regulated by the CBN.
According to Mohammed, the project tagged 'GIANT' will use the Hyperledger Fabric Blockchain for operation. The Hyperledger Fabric blockchain is a private and permissioned blockchain network designed by a computer hardware company, International Business Machines Corporation (IBM). They are permissioned blockchains in that each party is identified and every transaction is authenticated, authorized, validated, and tracked. The CBN determines who can get on the platform and can approve or override a transaction if it deems fit, unlike bitcoin, where transactions are approved upon the agreement of majority nodes.
When the pilot scheme is finally launched, the value of the CBN's digital currency will most likely be tied to the naira. And like China's digital yuan, which functions as a replacement for the yuan, i.e. one digital yuan equals one physical yuan. The CBN's digital currency will experience the same depreciation and inflation as the naira.
Continue reading "What to know about e-Naira, Nigeria's Central Bank digital currency"
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