On October 25, 2021, The Federal government of Nigeria launched the country’s Central Bank Digital Currency (CBDC), the eNaira. Touted as Africa’s first CBDC, the eNaira was expected to increase remittances, foster cross-border trade, improve financial inclusion, and enable the government to make welfare payments more easily.
While unveiling the digital currency, President Muhammadu Buhari noted that alongside the innovation which the eNaira promises, its adoption could improve economic activities and increase Nigerian GDP by $29bn over the next 10 years.
Despite all this promise, the adoption of the eNaira has been underwhelming and pushed aside by many Nigerians as one of those digital futilities. Indeed, one year after its launch, the Nigerian CBDC was struggling with a transaction volume of 700,000 amounting to just N8bn in value.
But then came the cash crunch occasioned by the Central Bank’s naira redesign policy. Many Nigerians were left in utter frustration after the CBN’s decision to redesign the naira note led to crunch Naira scarcity. The frustration was as a result of Nigerians trying to meet the deadline for returning the old notes and their inability to get the new ones. This led to collapse of economic activities amid escalating inflation.
The situation forced Nigerians to seek other means of payment and general transactions. While many embraced digital payments platform and neobanks like OPay, PalmPay and Kuda, others still, turned to the country’s CBDC, the eNaira for digital transactions. This new wave of adoption saw the number of eNaira wallets increase by more than 12 times to 13 million while transactions soared by 63%.
Though the digital currency witnessed significant usage amid the Naira scarcity, Nigerians never really embraced it because once the CBN backtracked and injected cash back into the system, Nigerians abandoned the eNaira yet again. This has left the FG at a loss on the best way, any way at all, to drive adoption of its digital currency.
G7 commits to help developing countries like Nigeria drive adoption
Last month, TechNext reported that the group of seven (G7) advanced economies is set to deliberate on the best possible ways to help developing countries introduce central bank digital currencies (CBDC) into their economies at a summit, slated to hold in Hiroshima, Japan.
The summit was targeted at hosting a large table discussion around how developing countries can be assisted in introducing their central bank digital currencies (CBDCs), as stated by Japan’s top currency diplomat, Masato Kanda. The meeting of finance ministers and central bank governors of the seven major countries (G7) was held in Niigata between May 11 and 13, with the adoption of a joint statement.
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In the joint statement, they expressed their intention to keep on plying the policy deliberation route to address financial digitization. Stringent emphasis was placed on the importance of CBDCs and the vital roles they play in the global payment system. There were also calls to improve international regulation and oversight of crypto-assets (virtual currencies).
The statement contended that the CBDC could be influential in a “trusted, stable, and transparent global payment system.” Referencing the Public Policy Principles for Retail CBDCs agreed in October 2021, the G7 stated that “any CBDC should, among other things, be committed to transparency, the rule of law, sound economic governance, cybersecurity, and data protection.”
In addition, the G7 recognized the ongoing work by the International Monetary Fund (IMF) in partnership with proven international organizations and national institutions to compile the “CBDC Handbook.”
This handbook is projected to embody insightful nuggets and guidance into the development and implementation of CBDCs. As stated by the G7, they are full of expectations for the launch of this handbook, which is expected to be released before their annual meeting.
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The joint statement also emphasized the significance of comprehensive crypto-asset monitoring, regulation, and governance. It recognized the financial stability and prudential concerns connected with cryptocurrency activities and markets while underscoring the importance of encouraging responsible innovation.
The G7 also urged the FSB and standard-setting bodies (SSBs) to promote the consistent and timely global implementation of their recommendations. It acknowledged the threats posed by DeFi and cryptocurrency intermediaries, expressing support for the FSB and SSBs’ follow-up efforts in these areas.
The G7 position indicates a growing realization among global financial leaders of the necessity for comprehensive crypto-asset regulation and monitoring. As the digital economy grows in prominence, governments are attempting to strike a balance between encouraging innovation and guaranteeing financial stability.
The G7’s joint statement is an important step toward developing a shared understanding and strategy for CBDCs and crypto-asset regulation. It lays the groundwork for future international collaboration and the creation of strong frameworks capable of addressing difficulties and realizing the potential of digital banking in a responsible and secure manner.
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