Saturday, October 1

Nigeria’s CBDC Ready for Pilot Launch on Independence Day

After four years of development, the Central Bank of Nigeria (CBN) is ready to implement its digital currency project. The launch will reportedly take place in celebration of the country’s 61st Independence Day on October 1.

Nigeria’s central bank digital currency project (CBDC) comes amid significant anti-crypto policies from the CBN and negative crypto sentiment from various government officials. The digital naira also comes at a time when its fiat counterpart has plunged to new lows, with the central bank enacting even tighter currency restrictions.

Details of the eNaira project circulated in the country’s commercial banks show plans for strict identity verification mandates to use the digital currency. The CBN plans to introduce a layered identity verification system with different transaction limits for each tranche.

Given that CBDCs are seen as governments’ response to privately issued cryptocurrencies and stablecoins around the world, there is concern that more anti-crypto laws may emerge in Nigeria. In fact, China increased its cryptocurrency crackdown activities as soon as its digital currency project went into the public testing arena.

The adoption of Bitcoin (BTC) in Nigeria continues to expand as cryptocurrencies offer easier remittance vehicles, especially for the country’s diaspora population, to support family and loved ones at home. Crypto also offers a means for the younger, upwardly mobile and tech-savvy population to protect their wealth from the rapid degradation of the naira.

CBN selects Bitt Inc

As Cointelegraph previously reported, CBN selected Bitt Inc, a Barbados-based fintech company, as its technology partner for its CBDC project. According to the CBN, Bitt’s role in the development of the Eastern Caribbean Central Bank’s DCash digital currency project played an important role in their decision to select the company.

In a press release issued on August 30, CBN identified Bitt’s “technological competence, efficiency, platform security, interoperability and deployment experience” as one of the reasons the Barbados tech company was the best candidate. for the position. In fact, Bitt was among 15 companies evaluated by the central bank for the role of technology partner in the eNaira project.

It was reported that the 15 companies were accessed in the evaluation process based on criteria such as anti-money laundering protocols, technological efficiency, adoption, systems security architecture and experience in implementing CBDC, among others. The Cointelegraph findings show that Bitt emerged with an aggregate score of about 82%, which was the highest among the 15 contenders.

Bitt was also the only company to score around 80% and was among the only two companies with relevant experience in live CBDC operations. This fact also reportedly influenced the litter box evaluation stage carried out by the evaluators under the Nigerian Government Procurement Act.

The CBN is likely to seek to leverage Bitt’s expertise in the national digital currency space, as well as the company’s CBDC management protocols to establish its eNaira project. Bitt has reportedly licensed its Digital Currency Management System to the CBN for the eNaira CBDC project.

Launching DCash in April, Bitt CEO Brian Popelka identified the interoperability protocols built into the design of the Eastern Caribbean CBDC. These features are likely to be central to the central bank’s efforts to encourage easier remittance flows for Nigerians using the eNaira digital currency.

ENaira Proposed Operations

In announcing Bitt as its technology partner for the eNaira project, the CBN highlighted CBDC’s “unmistakable” global trend among central banks. In fact, issues related to sovereign digital currencies are now commonplace among central banks, and some countries are already conducting pilot studies on CBDC.

At the end of August, the CBN reportedly sent a 57-page awareness document to the country’s commercial banks detailing the proposed operating models for the eNaira project. According to a copy of the draft guidelines seen by Cointelegraph, Nigeria’s CBDC, dubbed “Project Giant”, is designed to act as a complementary shape legal tender to the country’s fiat. As such, the eNaira will maintain parity with the naira, but will function as an interest-free CBDC.

In terms of the operating model for eNaira, the CBN has proposed a hierarchical structure for the CBDC with the central bank at the top of the pyramid, serving the financial institutions and government agencies which, in turn, provide the digital currency to the merchants and retail consumers. Based on the draft guidelines, the CBN is seeking to recruit banked and unbanked Nigerians.

At least a third of Nigeria’s adult population reportedly unbanked, with CBN June 2018 estimate bringing the figure closer to 37%. Of the more than 47 million verified bank account holders in Nigeria, only a third are reported to be active in terms of bank transactions, possibly indicating that the majority of the market that the country is targeting is still largely sub -banked.

Related: Nigeria to test central bank digital currency in October

While the CBN appears interested in expanding the scope of financial access in the country with the eNaira project, the CBDC will employ a tiered identity verification model with a transaction limit attached to each tranche. According to the awareness document, Tier 1 (the unbanked) will have to provide verified national identity phone numbers as well as other identification documents to qualify.

As previously reported by Cointelegraph, Tier 1 will have a daily transaction limit of 50,000 naira ($ 120). Existing bank account holders will be included in Level 2 and Level 3, with the distinction of the extent of their identity verification process.

Level 2 and Level 3 will have daily transaction limits of 200,000 naira ($ 487) and 1 million naira ($ 2,438), respectively. Beyond Level 3 there are merchants with a similar daily limit, but entities in this group will reportedly have no restrictions on the amount of eNaira that can be withdrawn to their bank accounts on a daily basis.

Banning of CBN’s cryptocurrencies

In February, the CBN banned banks and other financial institutions from serving crypto exchanges in the country. As a result, Nigerian cryptocurrency traders cannot fund business accounts of their banks.

At the time, the central bank clarified that the move was not aimed at banning cryptocurrency trading in Nigeria, but at preventing the flow of cryptocurrencies within the country’s banking sector. In subsequent Senate hearings after the fact, some lawmakers agreed with CBN’s position, saying that Bitcoin had rendered the naira almost useless.

Since the ban, various commentators in the crypto and fintech space in general have argued that the ban does more harm than good. With the CBN moving to implement its CBDC, there are concerns that even stricter anti-crypto policies are on the horizon.

Related: ‘Cryptocurrency is not legitimate money,’ says Nigerian central bank governor

In a conversation with Cointelegraph, Chiagozie Iwu, CEO of Nigerian crypto exchange Naijacrypto, said that the emergence of tougher anti-crypto laws was a possibility, stating:

“Yes, we expect the CBN to advocate even more anti-crypto policies, as it is clear that it sees cryptocurrencies as an obstacle to its monetary policy goals, although the data confirms this as a fallacy. All crypto companies in Nigeria should innovate ways of working within a restrictive system and think about jurisdictional changes. “

Fears about a possible crackdown on cryptocurrencies appear to hinge on the expectation that Nigeria may follow in China’s footsteps to restrict cryptocurrencies in the wake of its own CBDC. In fact, the CBN has previously highlighted policies enacted by authorities in China and India as justification for its anti-crypto stance.

For Iwu, the Nigerian crypto community must turn towards jurisdictional independence to avoid being caught under restrictive government policies. “Cryptocurrencies by their nature are decentralized, the push towards more decentralized methods of using blockchain innovations should be the main push,” added Iwu.