Over the next two years, the Central Bank of Nigeria will investigate the use of blockchain technology to power a central bank digital currency (CBDC), the possibilities for adopting stablecoins, and the regulatory aspects of initial coin offerings (ICOs).
The 83-page report, called “Nigeria Payments System Vision 2025,” discusses several ramifications for the country’s current payments landscape, with blockchain-based solutions taking center stage.
The document provides an in-depth analysis of the consequences of a blockchain-based CBDC, along with an analysis of 11 potential benefits. This involves payment, lowering cash management costs, preventing the use of counterfeit money, logistical efficiency, and improving
audits.
According to the Central Bank of Nigeria, monitoring and adjusting a CBDC can improve monetary policy, and better control over the value of a digitalized fiat currency can also be achieved. The Bank also mentions that a CBDC would enable it to effectively monitor and manage tax evasion, money laundering, and other unlawful actions.
The CBN also claims increased innovation and efficiency by fostering competition among retail payment solutions offered by current financial institutions and better financial inclusion and economic development. It is acknowledged that Nigeria can implement a CBDC solution in three to five years.
As fiat-backed cryptocurrency tokens spread across the globe, stablecoins are also being considered in Nigeria. However, to launch stablecoin offerings in Nigeria, the CBN claims that a regulatory framework must be created.
The Central Bank of Nigeria has a reserved opinion of initial coin offerings (ICOs), noting that there is little desire to use them given the absence of regulations. The CBN, however, recognizes the function of ICOs as an asset class and sees potential in embracing ICOs as a cutting-edge method of capital project fundraising, peer-to-peer lending, or crowdfunding.
Smart contract functionality is another point of interest highlighted in the policy document.
The CBN emphasizes the “tangible benefits” of linking settlement to the transfer of ownership through smart contracts. It also spoke about the transfer of ownership of financial securities or concluding business trade transactions with smart contracts.
Given that ICOs may be seen as securities or a new asset class, the CBN and the Nigerian Securities and Exchange Commission will need to cooperate in order to embrace and regulate them.
In 2021, Nigeria’s Central Bank adopted a tough stance regarding the cryptocurrency industry, virtually forbidding local banks from providing banking services to cryptocurrency exchanges there. About 18 months later, local media published rumors of a policy change in the form of a proposed legislation revision that would recognize bitcoin as investment capital.