The Central Bank of Nigeria's initiative to launch the national digital currency, eNaira, proved to be a complete failure. The government decided to allow the usage of Bitcoin and other cryptocurrencies for investment purposes instead of banning them.
The Central Bank of Nigeria has finally admitted that the CBDC project was a complete failure after more than a year of its launch in October 2021. eNaira didn’t gain mass adoption among the Nigerians and nothing could force them to use it massively: neither high commissions (5–10%) nor artificial restrictions on cash payments due to the "cashless payments" policy, nor limits on ATM withdrawals (capped at $45 per day or $225 per week). During the 14-month experiment by the Central Bank of Nigeria, eNaira has only been used by 0.5% of Nigerians. That was an epic fail of the CBDC project.
The eNaira mobile wallet that never took off
And now Nigeria, which has previously banned crypto, is set to pass a bill that will legalize their usage.
The Nigerian government justifies this action as a desire to follow modern "world practices." However, the public understands that this step was driven by economic factors and realities. The country is experiencing high inflation and currency depreciation, forcing people to hedge currency risks by using crypto as an alternative to the weak Nigerian naira. According to Chainalysis, one-in-three Nigerians use cryptocurrencies, and the country is ranked sixth in the Global Crypto Adoption Index. The only other nation in Africa with a significant cryptocurrency market is Kenya, though Nigeria is not far behind.
The news on Bitcoin and other cryptocurrencies legalization in Nigeria was first reported by the local newspaper Punch Newspapers on December 18. They published an interview with Chairman House Committee on Capital Market Ibrahim Babangida.
According to the interview, if fresh revisions to the investment and securities law from 2007 are signed into law, it would let the local Securities and Exchange Commission recognize cryptocurrencies as “capital for investment.”
The Committee's chairman emphasized that Nigeria must flow with modern trends and developments in the capital markets. He believes that the nation needs a quick and effective capital market, and the country must adopt the best global practices to achieve that.
It's interesting to note that in February 2021, Nigeria adopted entirely different "global practices," prohibiting all crypto activities. The Central Bank of Nigeria mandated banks to close the accounts of all individuals or entities engaged in the trading of digital assets, and ordered Nigerian cryptocurrency exchanges and service providers to cease their activity in the country.
However, Ibrahim insists that the passing of the law is not a 180-degree turn, but rather a secondary review of what is within the scope of the CBN’s powers. Ibrahim, by the way, served as Nigeria’s president from 1985 to 1993.
When cryptocurrency was initially banned in Nigeria, the CBN discovered that most of these investors don’t even use local accounts. So, they are not within the jurisdiction of the CBN. Because they are not using local accounts, there is no way the CBN can check them,he explained.
If the law passes, amendments will be made to Nigeria’s Investments and Securities Act 2007. The law will specify the regulatory responsibilities of the Central Bank of Nigeria and the Securities Exchange Commission of Nigeria on matters relating to digital currencies, in addition to giving legal recognition to Bitcoin and other cryptocurrencies.
Central Bank of Nigeria's logo on the headquarters building
The public's lack of interest in eNaira, the Central Bank of Nigeria's digital currency, is undoubtedly one of the factors that led to the decision to legalize cryptocurrencies, despite the government's refusal to acknowledge this fact.
The Nigerian government's earlier efforts to suppress crypto activity were ineffective, as crypto adoption grew following the ban in February 2021.
Nigerians only lagged behind the United States in Bitcoin trading volume from January to August of last year. During that time, they were more likely to google "Bitcoin" than people from any other country.
According to CoinGecko’s April study, Nigerians were the most crypto-curious nation. This curiosity was not surprising given the country's rampant inflation and economic instability.
Nigeria entered negotiations with crypto exchange Binance in September of this year to establish a crypto-friendly economic zone that will support the development of crypto and blockchain businesses in the region.
Lessons learned from Nigeria
Let this Nigeria's unfortunate experience be a warning to other nations considering enacting a CBDC and compelling their citizens to use it "under duress." As you can see, it was a failure, but Nigeria’s government drew the right conclusions in time and changed the course of development.
