There’s no doubt that blockchain and cryptocurrency have revolutionised the global financial landscape, with market-leading asset Bitcoin alone boasting a total market cap value in excess of $939 billion.
The latest trend has seen various central banks propose digital currencies, with Nigeria the first nation to release a formal digital currency in South Africa.
We’ll explore the concept of central bank digital currencies (CBDCs) below, while asking what sets Nigeria’s offering apart from its rivals?
What Is A CBDC?
In simple terms, a CBDC is a digital currency that’s backed by a government’s central bank, which means that they hold the liability as opposed to your private bank or branch.
In this respect, a CBDC is a digital version of a nation’s fiat currency, and one that also serves as a claim on the relevant central bank.
By utilising a CBDC, the central bank can issue electronic coins or accounts that are backed by credit and the national government, rather than printing money as usual.
As we’ve already touched on, CBDCs are the liability of a central bank, which places an onus on the government to maintain viable reserves and deposits to back their digital currency. This is not the responsibility of private banks, so a great deal of trust must be afforded to the government in question.
Recently, China became the first major economy to create and issue its own digital currency, with Nigeria having recently followed suit ahead of schedule.
What Sets Nigeria’s Digital Currency Apart?
It was considered to be a tremendous success when the Central Bank of Nigeria’s eNaira website went live ahead of schedule, particularly with the platform receiving more than one million hits after its launch.
According to the Central Bank, the eNaira currency will provide a unique form of money that’s denominated in Naira, while serving as both a medium of exchange and a tangible store of value.
As a result, it can offer superior payment prospects in retail transactions when compared to fiat currencies, making it an increasingly viable option in a challenging economic climate.
However, eNaira is different from other CBDCs that have been proposed, as while it will present itself as a digital form of cash and a direct liability on Nigeria’s Central Bank, all customer deposits that are gathered will be direct liabilities on individual financial institutions.
The wider debate that’s ongoing is whether eNaira should be considered as a cryptocurrency, particularly given the issue of central governmental control (although this is an issue with all CBDC assets).
It’s also unclear yet how viable eNaira would be as an investment option, or whether you could access it using a welcome bonus through your forex account.
However, there’s no doubt that this innovation will blaze a trail for others to follow in the region of South Africa, with Nigeria one of the first developing economies to conceive and launch a CBDC.