With 11 countries having launched alpha versions of retail CBDCs (central bank digital currencies) as of early 2023, it appears we’ve begun to pass through the Orwellian, techno-dystopian future looking glass. So far, all nations with an operational retail CBDCs are in the Caribbean, except for Nigeria.
Also so far, the Nigerian situation has been the most interesting story to watch regarding CBDC development.
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From late 2022, numerous events have occurred regarding Nigeria’s CBDC program — as well as other developments in the Nigerian economy in general — which make that country a possible example of how CBDCs will be forced on civilians.
For some background, CBDCs are entirely digital currency systems which fall into two categories: wholesale, intended for intra-bank transactions, and the second being retail, which central banks and governments hope to corral citizens into using for day-to-day transactions.
The Nigerian eNaira is one of the earliest “retail” type CBDCs, launched back in October 2021, second only after the Bahamian sand dollar in October the year before.
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Compared to most countries, Nigeria is pushing aggressively and far ahead into the new, digital economy, and has on this course since 2013. On top of this, Nigeria has one of the highest cryptocurrency adoption rates anywhere in the world, if not the highest. A report in early May, 2023 touts that as much as 47% of Nigerians had owned or used cryptocurrencies.
This isn’t all bitcoin; apparently Nigerians enjoy trading shitcoins as much, if not more than the rest of the world. Although in the Bitcoin sphere, too, Nigeria’s percentage of bitcoin saturation is one of the highest in the world.
Nigeria’s growth in this sector slowed during 2021-22, partially due to the cryptocurrency market collapse, but also due an attempted crackdown on cryptocurrency trading by the Nigerian Government and Central Bank of Nigeria (CBN).
The cryptocurrency trading crackdown was only retreated on in 2023, coming on the heels of several aggressive moves by the CBN and Nigerian government that served to truly rock the Nigerian economy.
While dynamic, the Nigerian economy has become increasingly unstable in recent years due to compounding issues. One of these issues facing the Nigerian economy has been extremely high depreciation in the Nigerian “naira” fiat currency over the last few years.
Counterintuitively in the face of high inflation since late 2022, Nigeria has been experiencing a debilitating ‘cash crunch; making it difficult for regular Nigerians to obtain physical cash.
This is a debilitating level of inflation for any country, nearing hyperinflationary levels and demonstrates extreme incompetence by the CBN. Making matters worse for regular Nigerian citizens is the country is experiencing a debilitating “cash crunch,” making it difficult for regular Nigerians to obtain physical cash.
This cash crunch is due to an ongoing initiative by the Nigerian government and CBN to replace the country’s ₦200, ₦500, and ₦1000 banknotes. Apparently this initiative represents an attempt to combat counterfeiting, hoarding physical cash, and the ability of criminals to operate.
This initiative was announced in mid-2022 and supposed to run from November 2022 to January 2023, by which date all old ₦200, ₦500, and ₦1000 notes were to become invalid.
Somewhere along the way, however, the initiative became botched: too many old notes were being withdrawn from the system with too few new being distributed.
As much as 54% of Nigerian physical cash may have been withdrawn from circulation from November 2022 to January 2023, resulting in a cash crunch serious enough to cause riots and violent protests throughout the country as the economy ground to a halt in Q1, 2023.
During this time President Buhari extended the old note expiry date to April, but even that move wasn’t enough to calm the crisis and the Nigerian Supreme Court needed to rule in favor of a longer extension.
Currently Nigeria’s currency situation is still opaque, which may be intentional as the government highlighted the surge of eNaira CBDC adoption by 63% in 2023 during the cash crunch. They seem keen to show that the recent push towards a cashless society has been a success.
Given this preponderance of evidence, some media observers are arguing the combined high levels of inflation and artificial cash shortage might be a situation engineered by the government and CBN to force adoption of the eNaira.
While this is unproven, it’s true that all of these areas of currency management are within the governments’ and CBN’s power to influence, and one possible motivation these institutions might have for doing this is the eNaira saw extremely low uptake during 2021-22: less than 0.5% adoption.
But the eNaira’s increased use in 2023 can’t be awarded as a consolation prize to the CBN, as there’s plenty of evidence the CBN and Nigerian government have done nothing except damage the Nigerian economy with these recent initiatives.
For example, in February 2023, the Nigerian Governors’ Forum Organization concluded that Nigeria was running a risk of a central bank-induced recession, and at the same time the UN concluded the cash crunch had damaged Nigeria’s informal economy.
Even the IMF commented on Nigeria’s economic situation, saying the world’s societies face numerous hurdles implementing retail CBDCs; you know you’ve jumped the shark when the IMF tells you to back off.
The eNaira itself didn’t perform to expectations during this period, either, as there are not-so-quiet, behind-the-scenes mutterings that the CBDC is “crippled”; in a report from Bloomberg the bank has apparently called in American firm R3 for tech support.
All this evidence — the botched banknote initiative, the eNaira rollout, and the ongoing inflation crisis in the country — it seems the planners at the CBN and the Nigerian government bit off more than they could chew.
Again, whether or not the currency crisis in Nigeria has been totally engineered, it isa good test case for how other nations might roll out retail CBDC initiatives in the future.