Nigeria and Ghana have joined a global trend by partnering with foreign financial technology companies to develop digital currencies for their own economies, following other nations that have already begun down this path.
Two of West Africa’s most populous countries, Nigeria and Ghana, are racing to create a central bank digital currency as they look to capitalize on the surge of cryptocurrency use in the region. By teaming up with foreign financial technology companies, central banks in both countries have produced digital currencies, all in the name of joining the global movement.
Nigeria, Africa’s largest economy, will begin the process of issuing its eNaira digital currency on October 1, and Ghana will have a one-month trial period for its e-Cedi currency starting in October.
Despite the ban on Nigerian banks transacting in cryptocurrencies, as people look for ways to escape the weakening naira currency and offset high cost of living and unemployment in Africa’s most populous country, the number of cryptocurrency transactions in Nigeria has seen a boom.
Cryptocurrency is seen as a means of wealth preservation and money movement for Nigerians, said Ayodeji Ebo, head of retail investment at Chapel Hill Denham’s Lagos office.
Cryptocurrency For transactional purposes
In light of the growth in digital payments, cryptocurrencies, and privately issued stablecoins, many central banks are researching the creation of virtual money as legal tender.
In other words, CBDCs are centrally bank-issued virtual money and cryptocurrency is completely outside of government control.
Last year, China became the first major economy to have a digital currency tested and implemented on a larger scale. According to a CBDC tracker developed by the Atlantic Council, five different countries have introduced digital currencies since then.
Nigeria and Ghana are already on the cutting edge of CBDCs, whereas countries such as Kenya, South Africa, and Rwanda are still in the early stages of exploration.
One step at a time
A German firm, Giesecke+Devrient (G+D), is collaborating with the Bank of Ghana to introduce the e-Cedi. Digitizing the country and the government is part of a larger plan to move in that direction.
In an experiment run with local banks, payment service providers, consumers, and others, G+D will provide the technological solutions that will be tested.
Nigeria went through three years of research to find a financial technology company with global reach to design and launch a CBDC known as “Project Giant.”
To ensure the CBN’s new digital currency is a success, the organization will depend on their tested and proven digital currency expertise, which is already circulating in several eastern Caribbean countries.
The new eNaira will be issued by the CBN and will operate on the Hyperledger Fabric Blockchain like the current naira currency. Additionally, it will also be priced in accordance with the country’s official exchange rate.
According to CBN governor Godwin Emefiele, customers will be able to download the eNaira app from October 1 and fund their mobile wallets with their existing bank accounts.
Cryptocurrencies and stablecoins have been rising in popularity among the country’s young and tech-savvy residents for quite some time, and the central bank has previously been concerned about their effects.
Despite double-digit unemployment and inflation, young Nigerians continue to seek opportunities to make money and store value.
Following rumors that the currency was being used for money laundering and terrorism financing, Nigeria’s central bank earlier this year ordered banks to stop facilitating cryptocurrency transactions.
Despite the central bank’s ban, many Nigerians continue to use cryptocurrency for foreign transactions even though it is illegal.
After successfully cross-border trade between Nigeria and nearby countries, eNaira is predicted to significantly benefit the Nigerian economy in a number of ways, such as increasing the efficiency of foreign exchange inflows and facilitating cross-border trade.
The total amount of remittances received in 2016 fell to $17.2 billion, the lowest since 2007.
Many observers say Nigerians abroad are moving away from the official channels of cryptocurrency transactions seen as faster and more efficient, especially in light of the Covid-19 pandemic fallout.
As of this year, Nigeria has ranked sixth in the world for crypto adoption according to data from blockchain analytics firm Chainalysis.
Some analysts already have questioned the country’s new electronic payment channel’s (eNaira) business model, as Nigeria has already relied on numerous existing electronic payment channels, including internet banking and mobile apps.
Smart devices play a critical role in digital currency, according to Prunedge CEO Joel Ogunsola.
“It almost looks like you are shooting for the same market, with how many people have these devices in Nigeria.”
But Andrew Nevin, Chief Economist at PwC Nigeria, claimed that eNaira comes with the benefit of lower transaction costs and easier acceptance.
Nevin explained, “The eNaira reduces the payment costs.” “When you implement a larger technology, like a central bank digital currency, that’s when you reach the goal.”