With a keen interest in cryptocurrencies such as Bitcoin and the Covid-19 pandemic, central banks are controversial around the world as to whether they should issue their own digital currencies.
Proponents argue that the Central Bank Digital Currency (CBDC) can facilitate cross-border transactions, facilitate financial inclusion and provide stability in payment systems.
The· Central Bank of Nigeria (CBN) said Thursday that digital currencies could be launched by the end of 2021. Rakiya Mohammed, a CBN information technology specialist, disclosed at an online press conference at the end of the Banking Commission meeting.
According to her, Apex Bank has been exploring technology for over two years and has made tremendous progress. “By the end of the year, the central bank will make a special announcement to make this kind of currency available to the masses and will probably start a pilot program,” she said.
Mohammed said the currency would complement the banknotes when they were finally operational. Another reason Apex Bank devised digital currencies, according to Muhammed, is to make it easier to transfer money from abroad to Nigeria.
Many governments, including the United Kingdom, Sweden, Hong Kong, Australia and the United States, are all looking for different ways in which digital currencies work. The European Central Bank is working with the European Commission on experiments to examine the benefits of the digital euro. Decide whether to launch Digital Euro in mid-2021.
Sweden, which has the lowest cash usage, launched a digital currency pilot program called e-Krona in 2019. In Hong Kong, experiments are expanding to use digital currencies to settle cross-border transactions between Thailand. ..
Mohammed said: “In terms of human and institutional involvement, Nigeria certainly lags behind the scale and scope of what China, Singapore, Europe and other individual countries are doing, but do it first. It’s not about doing it right. “
How does it work? Central Bank Digital Currency works like the money you see when you check your bank account online.
The “Digital Naira” is issued by the Central Bank of Nigeria and is held directly in the citizen’s digital wallet. CBN uses electronic coins and banknotes instead of printing physical money. You can access your digital wallet from your smartphone.
Government / financial authorities can also decide whether to open an account with citizens directly in CBN or manage digital currencies through a Deposit Money Bank (DMB) or a commercial bank.
Yana Afanasieva, Founder and CEO of Competitive Compliance, said: We distributed the funds to the citizens, but could not contact them because the details were not available. “
China’s digital yuan is not based on blockchain (the digital ledger technology that underpins cryptocurrencies such as Bitcoin). A blockchain is a persistent record of transactions or chains linked to act as a timeline or ledger, and in the case of Bitcoin, it is intentionally decentralized.
The CBDC may or may not be blockchain-based, depending on the design. China’s digital yuan is very similar to existing commercial digital payments such as Alibaba-pay and WeChat pay. Users can download a digital wallet to their mobile phone to store their funds. This will generate a QR code that payment terminals and shops can scan to make payments for food, retail items, etc.
What are the benefits of the CBDC? One of the benefits that the CBDC can offer is to reduce the cost of cross-border payments. Due to the inefficiencies of the corresponding outdated banking and payment systems, remittances from one country to another still average more than 10 percent. This will probably hurt people in the financial margin who are working abroad and trying to send money to relatives across national borders.
The CBDC can also promote financial inclusion, as well as the success of Kenya’s mobile payment service, M-Pesa. Still, there is debate about how it works. For example, do I need to create an ID or address proof to use the CBDC, considering that I don’t currently need to receive cash payments?
What are the risks? There are many risks associated with the CBDC. For example, relying solely on the CBDC and a sudden catastrophic power outage or hack could endanger the entire system. Therefore, there are drawbacks to being fully digitized. As a result, most central banks state that CBDC (if implemented) is likely to co-exist with other forms of currency.
There is another major concern in the fact that central bank-issued digital currencies can cause run-on-the-bank runs during economic instability. The CBDC provides people with another place to save money. These types of digital currencies are considered very secure assets. After all, these are stored at the Central Bank of Nigeria and will not go out of business immediately. During times of economic uncertainty, people are more likely to withdraw money from commercial banks and quickly stockpile secure digital currencies stored in CBN, which could make the financial crisis more volatile. there is.
Privacy can also be a major issue, depending on how digital currencies are designed. There is a risk that the CBN will create a honeypot in the middle of the data. Therefore, payment data is very sensitive and it is very dangerous to collect it in one place, so we need to consider how to protect that data and whether it is necessary to collect it. Therefore, you need to be careful.
This year will be the year when CBN is actively involved with the public. We have a working financial and banking system. However, all that is required is to carefully design the digital naira so that financial authorities / governments do not create anything that would undermine this very healthy market-based functionality.
Therefore, the CBN is considering creating a digital currency to help promote Apex Bank’s cashless policy, but the high level of illiteracy in the country could hinder the mass adoption of CBDCs in the country. there is. The apex bank also needs to be ready to undergo an awareness program to ensure that the CBDC can function in all classes in Nigeria.
Why CBN wants to enter the digital currency
https://businessday.ng/technology/cryptocurrency/article/why-the-cbn-wants-to-get-into-digital-currencies/ Why CBN wants to enter the digital currency