The latest strategy paper from the Central Bank of Nigeria reveals the importance of creating a legal framework for stablecoins. The country is ready to make the existence of private stablecoins public. The federal government of Nigeria is determined to show the necessity of a legal framework in its quest to be one of the world’s pioneers in adopting its own central bank digital currency (CBDC). The African country’s central bank recognises digital currencies based on the blockchain or DLT as technological and economic breakthroughs.
According to reports, stablecoins will likely become a successful payment mechanism in Nigeria in the coming 3-5 years. The published document outlines the need to develop a framework under the headline “Nigeria Payments System Vision 2025“, an 83-page report. The Central Bank of Nigeria (CBN) accommodates the possibility of stablecoins becoming successful and believes that initial coin offerings (ICOs) also can become a novel method of financing capital projects, crowdsourcing, and peer-to-peer lending. ICOs pay attention to the present regulation and highlight the current absence of rules in the country, causing investors to lose money.
In the published document, the Central Bank of Nigeria noted, “If implemented properly and supported with the right rules and regulations, ICOs could be turned into Financial Instruments and Investment Options, creating a new way to attract Foreign Direct Investment (FDI) and raise capital.” The country is regarded globally as one of the leaders in pushing to integrate its central bank digital currency (CBDC) into the national economy. The need for regulation for ICOs is also included in the report paying attention to the unavailability of regulation in the sector.
Nigeria’s innovation plan
The Central Bank of Nigeria also acknowledges that digital currencies built on the blockchain or distributed ledger technology are technical and economic innovations with the potential to enable value transfer to be made quickly and inexpensively without the need for third-party involvement. According to the report, the bank plans to continue watching briefs on Initial Coin Offerings and work with the Security Exchange Commission to develop a regulatory framework in case of an ICO-based investment solution.
The CNB will explore whether or not API integration on CBDC is applicable because innovations have the potential to improve operational efficiency, simplicity, trust, and customer experience. The bank aims to continue doing its research, anticipating that full implementation of the currency is possible within the next three to five years. In an attempt to push its cash-less policy and increase the use of the eNaira, insiders from Bitcoineer Official claim that in December 2022, the Nigerian government reduced the amount that individuals and businesses can withdraw to $225 and $1,125 per week, respectively. Since the outcry from Nigerians, they have increased the limit. Since its launch in 2021, eNaira adoption has been low. According to a report by Cointelegraph, the CBN has struggled to influence Nigerian citizens to use CBDC. Less than 0.5% of the population reported using the eNaira as of October 25, 2022.
Several economists condemned the central bank’s intention to develop a regulatory framework for adopting stablecoins for economic improvement, saying that it needs to be more accurate in looking at the failure of the e-naira after its incorporation into the economy. However, TechNext explained how stablecoins could help Nigerians hedge against the failing economy in a detailed report from 2022.
How can Nigerians benefit from the stablecoins regulatory framework?
The stablecoins regulation framework will likely encourage more Nigerians to buy digital assets. Purchasing stablecoins against currencies considered more vital than the Naira could be an advantage. Since there is no hope for Naira’s rise against the US dollar, it is best to save in stablecoins like USDT as it is projected to stay strong, unlike the Naira, which keeps losing value. Stablecoins do not look at national borders; it allows users to send a transaction to someone abroad instantly with low fees. It also offers transparency as it uses blockchain technology, where every transaction stored can be viewed by anyone. To save in USDT, an individual or business is not required to have millions; stablecoins can be purchased for as little as N5000 or less on peer-to-peer platforms.
The bank also promised to collaborate with industry stakeholders to identify prospective use cases, deadlines, and implementation techniques for potential solutions for remittance using blockchain technology. The Central Bank of Nigeria views this process as a way to reform the country’s economy. The government also plans to watch Potential Smart Contract solutions in other regions to develop valuable solutions and techniques. As we congratulate Nigeria on its plan to create a legal framework and ICO, we promise to keep you informed on any latest information regarding this topic. This article is informative and should not be used as legal advice.