I will not write much here to avoid stress on some people. But let me tell everyone that the Central Bank of Nigeria (CBN) is planning a huge redesign in the architecture of the financial systems in Nigeria. From my analysis of what is happening, this is the destination: the government wants clear visibility on financial flows in the nation. This is going to become a new dawn in Nigeria. And I think it is a good playbook.
The abolition of the bureau de change is necessary for the upcoming rise of e-Naira. Largely, there is nothing BDCs do that commercial banks cannot do today. Many Nigerians who want to transact in multiple currencies can open domiciliary accounts on top of their naira accounts. Yes, you can buy $100, facilitated by your bank, by merely debiting and crediting the right accounts. If that happens, the nation will have clearer insights on the state of things.
The Director, Information Technology Department, Central Bank of Nigeria (CBN), Mrs. Rakiyat Mohammed, stated at the banker’s committee meeting that the apex bank will be launching a Central Bank Digital Currency (CBDC) before the end of 2021: “As I said, before the end of the year, the Central Bank will be making special announcement and possibly launching a pilot scheme in order to be able to provide this kind of currency to its populace.” This follows a statement by the bank governor a few weeks ago: “Under cryptocurrency and Bitcoin, Nigeria comes 2nd while in the global side of the economy, Nigeria comes 27th. We are still conducting our investigation and we will make our data available.”
The BDCs do not offer that level of insights and as we move to the new age of e-Naira digital currency, the apex bank will like to work with commercial banks who have our full data (biometrics, photos, etc) to begin that transition to a quasi-banking era with the central bank.
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The destination is evident: in 3 years, if everything goes as planned, Nigerians can indeed get US dollars directly from the central bank but disbursed via agents like commercial banks. In other words, we will have an account in the CBN headquarters and the bank can ascertain and track what is happening.
The future of Naira has no role for BDCs because the CBN through technology will do what BDCs do today. Expect massive redesigns as the Central Bank of Nigeria goes retail, via e-Naira digital currency. The new digital currency is expected to be piloted in Q4 2021 and will possibly go live at scale in 2022.
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Comment #1: This should have been executed generations ago; but a good playbook non the less. And one that can be cheered even if the ramifications on the economy will be significant in the short term and hopefully not long term. If frictions in the banks selling and transacting between the naira and foreign currencies becomes flawless, then this move can be declared a win for the nation.
Unfortunately too many roads lead to and from the CBN that are not visible to the majority of the populace. If political might is stretched, someone may lose their job quite quickly or become an unjust target. I believe the CBN can be extensively innovative with the e-naira if they decide to be and can cause significant progress to be made in the current monetary playbook that has not made the positive impacts that has been expected.
The final quarter may be a bumpy ride in the nation. We hope the light at the end of the tunnel is not another candle light.
Comment #2: This is interesting, thanks for sharing Prof. Ndubuisi Ekekwe It is however pertinent to add that #CBDCs are not without limitations especially as it concern interoperability of the technology for cross-border payments and proactivity in international cooperation by monetary authorities. This is in echoed in the Bank for International Settlements – BIS report on CBDCs. Only time will tell where the road will lead us, game on!
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While the CBN can continue its gymnastics and acrobatics on the monetary side of things, there is a real and exciting economic architecture we can unleash on the fiscal side, which can finally get Nigeria working.
I am thinking of an economic architecture redesign where Lagos retains only the Financial Capital of Nigeria, Abuja will remain the Political Capital. We will now have a new Technology Capital, another as Entertainment Capital, another as Education Capital, another as Agriculture Capital, and so on. A 30 years development plan can accomplish all of these, government can contribute only 5%, with policy guarantees that must protect investors money from political upheavals.
How many of our aviation routes are viable outside Lagos and Abuja? Because there’s nothing at scale that can make businesspeople and professionals to fly from Asaba to Ilorin, because we concentrated everything in Lagos, so nothing to do elsewhere.
How to execute this mammoth economic redesign is very clear in my head, and if we can get it going, for the next 30 years, millions of our people will be so engaged with economic activities that they will forget that we still have politicians in Abuja.
We need a big reset in Nigeria, not petty things.
I do love your idea… they are quite ambitious but very do able..but ofcourse we need a working govt to execute.
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Aside from the traditional (bankers bank, issues of legal tenders, etc.) and regulatory (Bank rate, moral persuasion) role central banks play, they also shoulder the responsibility of development (drafting out policies that shape economic futures).
Recently, I have been reading articles and materials on how to finance Africa’s post-COVID development, one thing that comes out obvious is that there is need for transparency in the financial system. Largely, which is known to all, the people at the bottom are not the problem, they know and understand the implication of broken trust-esusu says a lot, so it safe to say it not a bottom-up method that holds the key but, a top bottom!
By the way, I just had to go back to my Secondary School Accounting book, and I do not see where third parties play crucial role. Yes, the act as intermediaries but they leave a hole of unaccountability. We know the amount that moved yet we don’t know why it was moved- even in cases of Ransoms, the “whys” are known. So, to this the Central bank of Nigeria should be applauded.
Further, this unnecessary layer creates the same effect of Bitcoin- capital magically grows thus devaluing home currency and this swings are just anchored on pure sentiment not on factors of production.
So, if we are going to be on the right path, past this we need to become very strict with how cash flow it makes the world take us more serious.
Good evening.
This drive, if accomplished, is a welcome development. I urge the CBN to be firm in their resolve and sincerely, save the Naira by doing the neeful, including but not limited to taking stiffer measures against any person(s) or institution(s) that violates this laudable initiative.
There are some points I agree with that you have made Ndubuisi Ekekwe, PhD, but to the extent that your piece is anchored on the fact that CBN principally will start dealing with individuals or individual companies with banks playing a lesser role, I think you may have to reconsider and re-evaluate.
For that to happen, the CBN governing law will have to change from their role as banker to banks and the Government.
Additionally, no Central Bank or Reserve Bank is going to expose itself to the magnitude of risk that comes with dealing with individual members of the public commercially. Undertaking that level of risk (even if they were to get the national Assembly to change the law, which is not going to happen in my humble view), does not make sense.
I am sure you have heard of the Petro Union Case, where some fraudsters sort to nail Union Bank and the CBN for £2.5bn that have now grown to £15bn, and the CBN is being fingered in the case for directly crediting an individual company purportedly with the value of the fake cheque of £2.5bn as though that company had an account with the CBN. Of course, the whole case is a fraud. The cheque was issued by a company in the UK that was no longer in existence at the material time and whose bank account in the UK on which the cheque was drawn had been closed 5years before the cheque was issued.
Yes, the Petro Union case has nothing to do with E-Naira but it goes to show the sort of legal risks a Central Bank could take on if it were to start engaging directly with members of the public on a commercial basis.
If the E-Naira is going to happen, I expect that the above issues, governing CBN and legal risk, will need to be taken care of first and if not or if it were intended to happen under the structure our able N.E Phd envisage, then the E- Naira project is probably mere talk and is not going to happen.
“Additionally, no Central Bank or Reserve Bank is going to expose itself to the magnitude of risk that comes with dealing with individual members of the public commercially. ” – my piece is based on the ordinance of Central Bank Digittal Currency (e-naira). Citizens will connect with governments. We will see and waiting for the technical data from CBN. But your points are noted.