Nigeria Digital Currency Game Changer.
As the world embraces digital payments, and cryptocurrencies and stablecoins rise in popularity, cash faces an uncertain future. Central banks around the world are considering adopting their own digital currencies as a result. And Africa is taking a leading role in these discussions.
Central bank digital currencies, or CBDCs, are the virtual format of a country’s or region’s base currency. They are also a sign of governments’ acknowledgment that the appetite for digital currencies will only keep rising—even under unfavorable policies, as evidenced by the recent Nigerian bitcoin ban.
This month, the Basel-based Bank for International Settlements (BIS) announced that South Africa’s central bank and those of Australia, Singapore, and Malaysia would trial CBDCs for cross-border payments. The move could motivate other financial institutions around the world to adopt the technology.
The BIS said it’s leading the project, which will enable financial institutions to transact directly with each other in the digital currencies issued by central banks. It will also eliminate the need for intermediaries, and reduce the time and cost of transactions. As the continent moves to implement the African Continental Free Trade Agreement (AfCFTA), this could be a gamechanger.
While the BIS trial is a multi-country initiative, nine other African countries are also looking at the viability of the technology, with most at the research stage, according to a tracker by the Atlantic Council think tank. Ghana and Nigeria have already announced plans to pilot their own CBDCs.
CBDCs are expected to ease the implementation of fiscal and monetary policy. In Africa, they could promote financial inclusion by bringing the unbanked into the financial system. They could play a major role in the continent’s huge remittance market—the most expensive in the world—by reducing transaction costs.
But digitizing currencies is not an easy proposition, as it raises questions around accessibility, privacy, and what architecture to use.
Trials such as the one in South Africa will help the world better understand how to best make use of the technology and could boost a sector that currently operates on shaky and shifting ground