The Need for a Centralized Digital Currency Post-Pandemic
During the compulsory lockdown due to the Covid-19 pandemic in Nigeria, several things have played out but very essential is the noticed rise in awareness, investment, and trading in crypto-currency. Surprisingly, Arcade Research ranked Nigeria fifth globally with its 11% of connected Nigerians owning or using cryptocurrencies. It then behoves to note that at present the CBN which is the central monetary regulation body in Nigeria is still very diplomatic about the outright ban of it, but has sternly warned the populace about it.
At present, there are over 2000 crypto-currency and virtual currencies alike. And interestingly, Nigerians are flooding digital currency as it easily facilitates the reception and payment from abroad and as well insulates themselves against the volatility of the value of the naira. Hence, this is an opportunity for the Nigerian government to grab this technological appraisal of her citizens by taking blockchain to her advantage.
Now, in this discourse, a careful perusal will be keenly made of what crypto-currency is all about, and how that the CBN can route this to boost the national economy post-pandemic by issuing a Central Bank Digital Currency (hence referred to as CBDC) which will make the inflow of blockchain boost the nation’s economy.
Nature and Operation of Cryptocurrency
Electronic money had been around since the ’90s, however, blockchain technology came in quite recently. The history will not be complete without recapping how a few Japanese programmers headed by Satoshi Nakamoto came together in 2012 to write research on digital currency and thereafter launched the Bitcoin Network. And at present, the major forms of crypto-currency are Bitcoin, Ethereum, Litecoin, and Ripple.
According to Modaq, crypto-currency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The technology that sponsors the operation of crypto-currency is known as Blockchain. A popular feature of cryptocurrency transactions is that they are operated through the use of secret codes called cryptography which facilitates the legitimacy of record-keeping through a distributed ledger.
However, a quick clarification should be made at this juncture – crypto-currencies and virtual currencies are only suburbs of digital currency. Investopedia explains the virtual currency as an electronic representation of monetary value that may be issued, managed, and controlled by private issuers, developers, or the founding organization.
How Bitcoin works – it bears a significant resemblance to base money or central bank money. It is a peer-to-peer Electronic Cash System. The peer-to-peer system of Bitcoin is built on blockchain, thus, allowing transactions to take place between users directly, without an intermediary. The basic process of generating crypto-currency requires a technical solving of complex mathematical problems or writing of problem-solving and deep tech code, this is otherwise called mining.
Nature of CBDC and Why CBN Should be Issuing It
One possibility of utilizing and modelling crypto-currency for national economic well-being is a Central Bank Digital Currency (CBDC), a widely accessible digital form of fiat money that could be used as legal tender. The reason ‘digital currency’ is the best term to describe this without ambiguity is because CBDC does not bear semblance with crypto-currencies like Bitcoin as the basis of decentralization and anonymity are left out. Well, there should be scepticism about digital currency as Haldane said “In one sense, there is nothing new about digital, state-issued money. Bank deposits at the central bank are precisely that.”
Several Central Banks in the world had been considering the integration of Central Bank Digital Currency. This is due to a relative decline in cash usage as well as the advancement in technology which has availed platforms and companies to make payments while bypassing the national currency. Several Central Banks are already heading towards this by making a proper research and examining the pros and cons. In Sweden, we already have E-krona, similarly, there is Uruguayan Peso which is a CBDC of Uruguay. Tunisia and Senegal had announced their digital currency and even the Governor of Bank of Ghana had recently said that the country will issue its digital currency in the future, interestingly, the same thing is playing out in Kenya.
The foremost reason CBN should consider issuing CBDC is that it is different from other crypto-currencies as it is under the control of the central bank. To implement this, the Central Bank would need to have a database that would keep a record of money held by each entity, however, strong data protection must be in place to that effect.
Another important reason CBN should consider CBDC is because in the general crypto-currency the death of the account owner is the end of his wealth, this relatively unfair happening could be remediated if there were a centralized digital currency where the state-of-kin system might most likely apply. This is enough reason for most insightful people to prioritize buying the national CBDC
Lately, even the issue of anonymity in crypto-currency is being questioned as users of a single wallet incessantly complain of attacks by smart hackers who could generate the users’ alphanumeric keys. This means that the boastful anonymity and data protection of cryptocurrencies is already being hunted down. With this, people will not mind the fact that CBDC is without anonymity, but instead, will feel safer to invest in it. Hence, the reason Central Bank of Nigeria should seize this opportunity and use it for her good by making a centralized digital currency be in place.
Also since CBDCs are only accepted in the country that issued them, this is a subtle retention scheme through which the CBN will channel the spending of her digital currency within the borders of the country.
Fear of CBN and Need for Regulatory Framework
The Central Bank of Nigeria on February 28, 2018, made a press release that virtual currencies are not legal tender in Nigeria, and investors in such do so to their benefits or detriment as the case may be.
Well, one fear of governments towards cryptocurrency was probably stemmed from the incident of Silk Road which was the digital black market platform that was popular for hosting money laundering activities and illegal drug transactions using Bitcoin. This mindset about virtual currencies has made the government have some reservations for transactions of that nature.
Progressively, the way forward now is not to jettison in fear, but rather to have a roundtable with resource persons and stakeholders on how to turn this table around.
As Abdul has notably remarked, the scary threat to legislators across nations is the speed and high propensity with which an increasing number of the current generation of technologically inclined youths and curious adults embrace Bitcoin
It was even in place of this that CPIM in the year 2015 advocated that lack of central control by any government or administrator raises serious concern to the government in every continent. Sequel to this, the FinTech Roadmap Committee of the Nigerian Capital Market in her Report in 2019 pleaded that the CBN should step-up like other Central Banks and provide regulatory framework for cryptocurrency and blockchain technology in Nigeria.
On this note, start-ups argue that the CBN provides legal guidelines for the cryptocurrency industry, so investment will not be extensively exported out of the country. Places like Malta and Rwanda thrive on blockchain as they provide regulations towards it and accept it. In terms of the policy, this shouldn’t be done solely by the CBN without brainstorming with relevant stakeholders like FinTechs and financial institutions; with the joint effort in policymaking, there is much more to be achieved.
As it has been scholarly argued back and forth in this piece, a subtle way that the national economy can experience a quantum leap is blending with the trend of virtual currencies and even more, the CBN is encouraged to begin with issuing a Nigerian CBDC which will help in channelling the blockchain technology to boost the national economy.
Regardless of the ‘bad sides’ of crypto-currencies can only be ameliorated/mitigated by overlooking these inadequacies and majoring on how they can be utilized to resuscitate the Nigerian economy in this season.
John Fawole is a law undergraduate and a content writer with interests in anything that pertains to; Law, Finance and Technology. He loves to read and write on the latest developments in these fields. John is currently interning at Ashurst LLP, he can be reached via email@example.com