January 8, 2024/CSL Research
A consortium of Nigerian financial institutions, fintech, and blockchain experts known as the Africa Stablecoin Consortium (ASC) is preparing to unveil a compliant Nigeria Naira (cNGN) stablecoin in February. The consortium, in a statement released on Friday, noted that the cNGN launch aligns with the Central Bank of Nigeria’s new regulatory standards on virtual assets. Recall that following the relaxation of the ban around cryptocurrency transactions with banks, the CBN issued operating guidelines for Virtual Assets Service Providers (VASPs) for cryptocurrency. The consortium envisions that the cNGN stablecoin will transform financial transactions, noting that the cNGN will usher in a new era of financial fluidity and will transform the Naira into a currency for worldwide remittances, trade and investment. The cNGN is to be pegged 1:1 to the Nigerian Naira
It is imperative to know some key differences between the e-Naira and the cNGN. Unlike eNaira, cNGN will be a cryptocurrency like other stablecoins (USDT, USDC etc) and not a Central Bank Digital Currency (CBDC). The cNGN will be maintained by the consortium and will be held by the banks in the consortium. Also, The CBN will not have direct control over the cNGN in the same way it does over the eNaira, albeit the Nigerian Securities and Exchange Commission (SEC), will have regulatory oversight. Also noteworthy is the fact that the benefits and effects of the cNGN stablecoin on monetary policy and FX liquidity could be more significant than the eNaira, given its wider target reach. Further, the cNGN might indeed have greater adoption and success than the eNaira, especially given the recent relaxation of the CBN’s rules around banks’ participation in cryptocurrency.
There is an increasing number of Nigerians patronizing cryptocurrencies and the country records a high volume of crypto transactions. Nigeria ranks second on the 2023 Global Crypto Adoption Index for Sub-Saharan Africa. Adoption of cNGN extends users financial reach far beyond Nigeria’s borders without traditional challenges of currency conversion, settlement time and hefty international transaction fees. Despite the many benefits associated with the use of cryptocurrencies, the opacity of cryptocurrencies that have made them well suited for conducting many illegal activities such as money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion makes them unacceptable by many monetary authorities. It could be used as speculative tools which could be catastrophic for the Naira. That said, we believe the stage is set for stakeholders and traditional financial players to collaborate, innovate, and build less cumbersome and safe hybrid financial services and tools
