Nigeria has introduced its CBDC (Central Bank Digital Currency) called the eNaira. It had banned all crypto usage in the country earlier this year.
The economy and cryptocurrencies
- With 211 million citizens and a GDP of $480 bn for 2021, Nigeria is Africa’s largest economy.
- Economic development has been hindered by years of public corruption, military ruling and mismanagement.
- 30% of its economy comes from farming. Oil represents 40% of the GDP and 80% of the governements income. Remittances represents the country’s second source of foreign exchange.
- Organized crime is substantial, notably financial crime and money laundering.
- The population is growing fast. It is diverse and divided. International observers consider that the lack of education is driving Nigeria into a failed state.
- Also, 62% of the Nigerian population is 24 or younger.
- Unsurprisingly the country ranks 6th in the world for cryptocurrency adoption, but it is also one of the world’s least “banked” economies.
- The digital platform Paxful is the leading system used in Nigeria, with 1.5 million users (and 7 million globally).
- The new currency will become the second largest CBDC in the world, after the Chinese Remnibi.
- It is expected to increase the economy by $29 bn (6%) over the next 10 years.
- The eNaira is pegged to the national currency, which was twice devalued this year and suffered years of underperformance.
The deployment had some glitches.
- The new CBDC was deployed by Bitt, which also managed the East Caribbean digital currrency DCash.
- The launch was delayed from October 1st (Nigeria’s independence day) for technical reasons.
- The Android app failed on the day after after the launch and was removed from the Google App store after 100,000 downloads.
- The Central Bank immediately indicated that it would not be liable for any loss.
- Attorneys believe that the waiver has limited power, since the introduction was organized under teh name of the Central Bank, not by a commercial institution.
Nigeria forbade cryptocurrencies
- In February, the Central Bank had banned all banks and commerce from accepting or facilitating cryptocurrencies operations. It considered cryptocurrencies as a threat to the financial system.
- Among the reasons, we can probably see:
- The national currency has lost 30% of its value against the USD over the last 5 years. Remittances tended to be sent in crypto, to prevent the risk of a loss in savings. As more remittances were converted into cryptocurrencies, the purchase of the local currency decreased, which amplified its fall.
- Nigeria is rocked by civil unrest. The government cracked down and notably prevented a feminist coalition of 13 women to raise funds. The coalition managed to raise $150,000 nevertheless thanks to cryptocurrencies. That financial power scared the political class.
- The cryptocurrency volumes kept on growing nevertheless. Trades went underground, aka harder to monitor and less safe. Platforms started to use peer-to-peer approaches or moved abroad. Others started to declare the cryptocurrencies as regular currencies to circumvent the regulations.
- Criticism of the ban was heavy
- With a labor force 27.1% unemployed, 28.6% under-employed and very underbanked, eliminating a mean of commerce didn’t go too well with the Nigerians.
- The Central Bank was accused of collecting greater control.
- This being said, preventing money laudering is probably one of the reasons why the country introduced its CBDC.
Unlike developed countries, emerging countries have more to benefit from a mode of payment which is available on a cell phone and doesn’t require a bank account.
In the case of Nigeria, inflation and protests probably were the key reasons for the crypto ban and the later introduction of a CBDC, but no country can afford or will relinquish the control over its currency.
I suspect more countries will follow Nigeria’s path.
References (Navesink International)
- Navesink International, June 17, 2021: Should Central Banks issue digital currencies?
- Navesink International, October 25, 2021: The pros and cons of crypto markets (vs. regulated markets)
References (Public domain)
- BBC, October 1, 2020: Nigeria turns 60: Can Africa’s most populous nation remain united?
- The Conversation, October 25, 2020: Why Nigeria can’t fix its development agenda: and where the solutions lie
- Quartz Africa, March 17, 2021: Nigeria’s crypto startups and traders are still at the mercy of its central bank
- The Guardian, July 31, 2011: Out of control and rising: why bitcoin has Nigeria’s government in a panic
- Foreign Policy, September 10, 2021: Buhari’s Authoritarian Twitter Ban Continues to Silence Nigerians
- Bitcoinist, October 24, 2021: Nigeria Prepares To Launch Digital Currency eNaira On Monday
- TRT World, October 25, 2021: Nigeria launches its central bank digital currency eNaira
- Al Jazeera / Bloomberg, October 25, 2021: Nigeria becomes first African nation to roll out digital currency
- Punch, October 28, 2021: After 48hrs, eNaira app removed from Google Store amid criticism