With the announcement by the Central Bank of Nigeria (CBN) last week that it had selected a technical partner for the implementation of its digital currency project, the countdown has begun for the launch of the eNaira, writes TONY CHUKWUNYEM
Given that so many cryptocurrencies are seeking legitimacy as an alternative form of money, central banks globally are striving to protect public trust in the currencies that they issue.
Thus, a recent survey of central banks carried out by the Bank for International Settlements (BIS) found that 86 per cent were actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects.
Although it was while briefing journalists at the end of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) in May this year that the apex bank Governor, Mr. Godwin Emefiele, first disclosed that the idea of a digital currency would soon become a reality in the country and that the regulator had already set up its committee, which was working on the concept, not too many industry watchers believed at the time that there was the possibility that the nation could have its own digital currency before the end of this year.
So, the announcement made by the Director, Information Technology (IT) Department at CBN, Mrs. Rakiya Mohammed, during the customary press conference at the end of the Bankers’ Committee meeting in June, that Nigeria would launch its own digital currency before the end of this year, was clearly a major news item in financial circle. As Mrs Mohammed put it, “officials of the CBN have been exploring the digital currency technology for over two years.
There are two types of fiat currency, the notes and coins. The CBN digital currency will be a third type of currency. It will supplement cash. Rather than carry cash about, you have the money in your phone.”
Revealing that the CBN would set up a Central Governance Structure to address all associated risks with a view to ensuring that the Nigerian public got the best technology for the digital currency, which would be launched before the end of the year, she said that the proposed digital currency would enhance the nation’s financial inclusion drive and reduce the cost of cash management, while enabling innovations in the nation’s financial market.
Reactions were still trailing Mohammed’s announcement, when she was reported by a financial news website in July as telling participants at a private webinar that the CBN planned to launch the pilot scheme of its digital currency on October 1, 2021.
According to the report, Mohammed said that the scheme was named “Project Giant,” adding that it will use the Hyperledger Fabric blockchain. Citing guidelines on the project that the CBN sent to deposit money banks (DMBs), the website also reported that data for the scheme will be stored on a cloud server and that the implementation process would be in five stages: Monetary Authority Suite, Financial Institution Suite, eGovernment Suite, PoS merchant integration and Retail Consumer Suite respectively.
According to the report, the Monetary Authority Suite states that the CBN will be the authorised issuer of the eNaira, as well as the sole distributor of the government- backed digital currency.
It further stated that the apex bank, which will be in charge of the first product component, will be able to redeem and destroy the digital currency. Under the Financial Institution Suite, licensed financial institution can only request for the eNaira or stablecoins and manage it across their branches.
In addition, the report states that DMBs will later create their own wallet for the digital currency as the CBN had created the apex bank’s wallet to ensure it meets the deadline for the launch in October.
It further stated that the eNaira is a legal tender for the entire country, adding that the digital currency will have non-interestbearing Central Bank Digital Currency (CBDC) status, a transaction limit for customers and a value-based transaction limit.
On how customers can register for the eNaira, the report states that DMBs will onboard customers on the digital currency platform by issuing a code to their verified customers or send invitation codes to specific customers. However, persons without bank records won’t have access to the eNaira. Also, Point Of Sale (PoS) merchants would be expected to assist the banks to drive the penetration rate of the digital currency,
Significantly, the report said that the eNaira will not serve as a store of value for users, as it will be a form of payment neither will it bear interest for holders like Bitcoin, Ethereum and other cryptocurrencies.
Unveiling technical partner
However, official confirmation that the CBN is stepping up efforts to ensure the launch of the eNaira came last Monday when the apex bank announced that it had engaged global Fintech company, Bitt Inc., as the technical partner for its digital currency.
In a statement by its Director, Corporate Communications Department, Mr. Osita Nwanisobi, CBN said the selection of Bitt Inc, from among highly competitive bidders, “was hinged on the company’s technological competence, efficiency, platform security, interoperability and implementation experience.” It explained:
“In choosing Bitt Inc, the CBN will rely on the company’s tested and proven digital currency experience, which is already in circulation in several Eastern Caribbean Countries. Bitt Inc. was key to the development and successful launch of the central bank digital currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021.”
Giving further details about the selection process that saw Bitt emerge as the CBN’s preferred technical partner for the implementation of the CBDC from a group of 15 prospective technical partners, Nwanisobi told journal- ists during a session last week that the apex bank adhered to the provisions of the Bureau of Public Procurement (BPP) as stipulated in the Public Procurement Act.
The CBN spokesperson stressed that the regulator based its selection assessment on technology ownership and control; implementation timeline; efficiency, ease of adoption; support for anti-money laundering and combating the financing of terrorism (AML/CFT); platform security; interoperability and implementation experience, among others.
“Bitt was the first company to digitise a national currency on a blockchain, thus creating the first synthetic CBDC, with the support of the Central Bank of Barbados governor and the minister of finance. That system is still in operation today,” he said.
He emphasised that the eNaira had the potential to resolve many of the issues currently associated with cross-border payment and could help improve forex accretion and utilisation. In addition, he said issuing a CBDC could reduce demand for foreign currencies as Nigerians could use CBDC to transact both locally and across borders in future.
Nwanisobi also explained that the eNaira was designed to complement rather than replace the existing paper money and coins currently in circulation.
He highlighted other benefits of the eNaira to include a marked improvement in the CBN’s monetary policy transmission, adding that transactions on the eNaira will be at lower cost and greater time efficiency for all users.
Urging members of the public to embrace the eNaira when it is unveiled in the coming weeks, the CBN spokesman also enjoined stakeholders to support the regulator’s policies, stressing that the bank remained focused on its resolve of being a peoplecentered central bank.
However, analysts note that while CBDCs may have significant advantages over cryptocurrencies such as bitcoin, experts are still studying just how significant the impact of the government-created digital currencies would be on the financial system.
Indeed, New Telegraph recently reported that the BIS Innovation Hub, along with Reserve Bank of Australia, Monetary Authority of Singapore, Bank Negara Malaysia and South African Reserve Bank, were carrying out a project aimed at developing prototype shared platforms for cross-border transactions using multiple CBDCs.
Commenting on the project, the chief of the BIS Innovation Hub Singapore Centre, Andrew McCormack, said it “brings together central banks with years of experience and unique per-spectives in CBDC projects and ecosystem partners at advanced stages of technical development on digital currencies,” adding that the BIS was confident that the experiment will “lay the foundation for global payments connectivity.”
Furthermore, the BIS said that the proposed platform will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions.
It added that the project will also explore governance and operating designs that would enable central banks to share CBDC infrastructures and gain from collaboration between public and private sector experts.
Although most analysts are waiting for the CBN to launch the eNaira before they would assess its pros and cons, as Cowry Asset Management Ltd noted in a report released at the weekend, “the apex bank’s move to join other central banks around the world to leverage on digital currency indicates a forward thinking leadership that is in line with global trend.”
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