Bitcoin landing in the ground against the background of the Nigerian flag

eNaira low adoption pushes Nigerian banks to develop stablecoin

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A number of Nigerian commercial banks has signaled their intention to develop a stablecoin to complement the efforts of the eNaira, the country’s embattled central bank digital currency (CBDC).

The stablecoin, dubbed cNGN, is expected to be launched in January 2024 and will have its value pegged to the naira at a 1:1 ratio. Sources say the project will be built on a publicly distributed ledger, offering interoperability with various payment systems.

Stablecoins are digital assets with values pegged to fiat currencies or another financial instrument, offering investors stability against the volatility associated with digital currencies.

Participants in the project include leading lenders Access Bank, Sterling Bank, Providus Bank, and First Bank (NASDAQ: FRBA). The joint project is expected to receive technical support from key ecosystem players like Interstellar, Convexity, Kora, Interswitch, and BudPay, making it one of the largest collaborative projects in Nigeria’s payment space.

“cNGN is a compliant and regulated consortium-backed stablecoin that we have been advocating,” said one unnamed source. “It maintains a peg to the Naira in a reserve bank account.”

While technical details are sparse, pundits predict several use cases of the consortium-backed stablecoin, including a deployment for interbank settlements. The project’s interoperability features have signaled a potential for cross-border payments, but its application for domestic retail payments remains unclear.

Mainstream retail use of the stablecoins puts the cNGN in direct competition with the eNaira, casting a large shadow of doubt over the future of the country’s CBDC project. To allay fears, the consortium participants say the cNGN will operate as a complement to the eNaira and not as a substitution.

Since its launch in 2021, the eNaira has recorded dismal adoption figures, with the former central bank governor pointing accusing fingers at commercial banks for stifling CBDC adoption levels. Pundits argue that despite its limited functionalities, the cNGN may be the final nail in the eNaira’s coffin, given the experience of commercial banks in introducing new offerings to their customers.

The central bank gives greenlight

The consortium’s plan to roll out a stablecoin came to light after the Central Bank of Nigeria (CBN) gave the greenlight for banks and other financial institutions to offer banking services to virtual asset service providers (VASPs).

Under the CBN’s guidelines, banks can now offer VASPs with bank accounts and designated settlement accounts, as well as offer foreign exchange conduit services to digital asset firms.

However, VASPs must meet certain minimum standards to access banking services with Nigerian lenders, including obtaining a license from the country’s Securities and Exchange Commission (SEC) and due registration with the Corporate Affairs Commission (CAC).

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Stablecoins with Daniel Lipshitz

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