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Decentralized Cryptocurrencies gain more popularity in Nigeria over CBDCs.
Nigeria gained notoriety in 2021 when it launched the eNaira, one of the first CBDCs, which was hailed as a means of bringing banking to the whole population of the African nation. According to a report, only 0.5% of Nigeria’s 217 million inhabitants are using the central bank-issued digital money one year after the eNaira’s launch, therefore adoption is not progressing as quickly as the government had hoped. Nigerians are thought to be the most crypto-savvy people on the African continent, with the country ranked as the top country for crypto adoption in Africa and 11th globally. In 2022, 35% of Nigerians between the ages of 18 and 60 declared owning or trading cryptocurrencies.
SO, WHAT ARE CBDCs?
Central bank digital currencies (CBDCs) have been a popular topic of discussion over the past six months as the collapse of the crypto market prompted global regulators to lament the perils of investing in cryptos and push government-backed digital assets. Central bank Digital currencies are digital tokens that are issued by a central bank and resemble cryptocurrencies. They are linked to the value of the fiat money used in that nation. The fiat currency of a nation is represented digitally by a central bank. A country’s central bank or monetary authority issues and controls CBDC. CBDCs facilitate the execution of monetary and fiscal policy and advance financial inclusion. They might not anonymize transactions like some cryptocurrencies do because they are a centralized type of money. Numerous nations are investigating the potential impact of CBDCs on their economies, current financial systems, and stability. CBDCs are being developed by numerous nations, and some have even put them into practice. Understanding digital currencies and what they signify for society is crucial because so many nations are looking at how to make the transition.
According to Bloomberg, one of the primary obstacles to adoption has been a lack of government clarification over the legality of the eNaira, which led to the government’s February 2021 ban on banks providing services to cryptocurrency exchanges. Hamed Lawan, a 23-year-old driver, questioned why they were asking for eNaira. “I thought the government stated bitcoin is evil,” you say. The main obstacle is a lack of knowledge; the government and central bank have had difficulty informing Nigerians about the CBDC and describing how it differs from other cryptocurrencies they are familiar with, such as Bitcoin and Ethereum.
The development of eNaira is being keenly watched by central banks from all around the world because it provides insights into how their own products may be perceived and what actions they may take to try to assure its adoption and success. According to the Atlantic Council, 105 nations representing more than 95% of the world’s GDP are considering a CBDC as of May 2022. According to Josh Lipsky, senior director of the GeoEconomics Center at the Atlantic Council, “Nigeria’s project is very important to the world.” The world is closely watching what Nigeria is doing, but the verdict is yet out, in my opinion.
It’s not looking too hopeful right now because the general public seems utterly uninterested in a centralized digital currency when there are many freely accessible decentralized currencies. People with more in-depth knowledge of cryptocurrencies and blockchain technology have even less interest. Nigerians’ reluctance may also be influenced by the central bank’s difficulties to keep the naira’s value stable; since 2015, the currency has undergone six devaluations, and economists predict that next year’s inflation will cause another 20% loss in value. Due to the country’s lack of dollars, the central bank had to restrict foreign exchange on the main market, which forced citizens to turn to the more expensive parallel market and cryptocurrencies.
Adesoji Solanke, director at Renaissance Capital in Lagos, claims that since the eNaira does not solve any of these fundamental use cases, it is not surprising that adoption rates have been so low. Nigeria placed 11th in the world in terms of adoption of cryptocurrencies, according to blockchain data company Chainalysis, despite efforts by the central bank to convince lenders in the West African country to steer clear of doing business with cryptocurrency exchanges. The Nigerian central bank has set out on a mission to encourage the use of the eNaira by providing incentives, such as a 5% discount to drivers and passengers of motorized rickshaws that travel the city streets, in reaction to the currency’s slow adoption.