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(Kitco News) – Central bank digital currencies (CBDCs) have been a popular topic of discussion over the past six months as the collapse of the crypto market prompted global regulators to lament the perils of investing in cryptos and push government-backed digital assets.
Nigeria made headlines in 2021 when it became one of the first countries to launch a CBDC – the eNaira – which was touted as the way to bring banking to all citizens of the African nation.
Now, a year after its launch, the adoption of the eNaira is not going quite as the government had planned as only 0.5% of Nigeria’s 217 million citizens are using the central bank issued digital currency, according to a report from Bloomberg.
The population of Nigeria is considered to be the most crypto-savvy on the African continent, with the nation ranking as the top country in Africa for crypto adoption and 11th globally. More than a third (35%) of the Nigerian population between the ages of 18 and 60 reported owning or trading cryptos in 2022.
Bloomberg cited confusion as one of the main barriers to adoption as a lack of clarity from the government, which banned banks from servicing crypto exchanges in Feb. 2021, has left citizens unsure of the legality of the eNaira.
“Why is it asking us to collect eNaira?” said 23-year-old driver Hamed Lawan. “I thought the government said cryptocurrency is bad?”
The crux of the challenge centers around education – the government and central bank have struggled to educate Nigerians about the CBDC and explain how it’s different from cryptos they are familiar with, like Bitcoin and Ethereum.
Central banks from around the world are closely monitoring the progress of the eNaira as it offers insights into how their own offerings might be received, and what steps they can take to try and ensure its adoption and success. As of May 2022, 105 countries, representing over 95 percent of global GDP, are exploring a CBDC, according to the Atlantic Council.
“Nigeria’s project is hugely important to the world,” said Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. “My bottom line on Nigeria is the jury is still out, but the world is paying close attention to what they’re doing.”
Thus far, it’s not looking too promising as the average population seems completely uninterested in a government-controlled digital currency when there are widely available decentralized options. The lack of interest is even more pronounced in populations with more extensive knowledge of cryptocurrencies and blockchain technology.
The struggles of the central bank to maintain the value of the naira also plays a role in the hesitation by Nigerians, as the currency has been devalued six times since 2015, with economists expecting a further 20% loss in value next year due to rampant inflation.
This has led to a shortage of dollars in the country, prompting the central bank to ration foreign exchange in the official market, which has pushed residents into the more expensive parallel market and cryptocurrencies.
“The eNaira does not address any of these basic use cases, so no surprise at its low adoption rates so far,” according to Adesoji Solanke, director at Renaissance Capital in Lagos.
Despite the central bank’s efforts to persuade lenders in the West African nation to avoid transacting with cryptocurrency exchanges, Nigeria ranked 11th in the world in adopting cryptos, according to blockchain data firm Chainalysis.
In response to the lagging adoption, the Nigerian central bank has embarked on a mission to boost the eNaira’s uptake by offering incentives for its use, such as a 5% discount to drivers and passengers of motorized rickshaws that navigate the city streets.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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