With inflation surging to its highest level in nearly two decades, Nigeria is pushing forward with plans to further digitize its currency. The Central Bank of Nigeria (CBN) recently approved plans for a consortium of banks and tech companies to pilot a new stablecoin, the compliant Naira (cNGN).
Pegged one-to-one with the paper Naira, this crypto asset aims to facilitate faster and cheaper cross-border transactions. However questions still remain over the utility of such a stablecoin, with the naira’s price skyrocketing in recent months.
Consumer prices in Nigeria have escalated over the past year, jumping to 26.7% in September. Food costs have skyrocketed even more drastically to 30.6% as rising transport expenses and import restrictions strain supply chains. This brutal combination of “foodflation” and a rapidly depreciating Naira has eroded purchasing power and savings. With ordinary Nigerians struggling under the weight of rising prices, the CBN has its work cut out.
The CBN has aggressively hiked interest rates in 2022, lifting its key rate to 18.5% in an effort to battle inflation. However, tightening measures alone cannot offset the plunging value of the Naira, both officially and in parallel black markets. Strict foreign exchange controls have constricted dollar inflows, creating shortages of hard currency critical for imports.
Questions remain about how useful a stablecoin pegged to a volatile currency such as a the naira will be. When interacting with crypto, most Nigerians have turned to Bitcoin (BTC) or dollar-pegged stablecoins to flee from the naira’s rapidly declining value.
Although, even with rampant inflation, the nNGN still has some use cases. Beyond crypto circles, the cNGN aims to streamline mainstream banking services. By instantaneously settling global payments within a transparent blockchain network, the cNGN may slash exorbitant fees and delays intrinsic to legacy wire transfers.
For Nigerians abroad sending money home to loved ones, these cost savings could provide welcome relief. With remittances accounting for 6% of Nigerian GDP pre-COVID, improving this financial pipeline holds economic promise.
If the cNGN takes off, it could also unlock new opportunities for Nigerian businesses participating in global trade. Accepting rapid payments in Naira rather than dollars or other currencies simplifies commerce across borders. This aligns with the CBN’s goals of enhancing access to foreign exchange—not simply imposing stringent controls.
The hope is that by expanding connectivity to decentralized blockchains, the cNGN may assist underbanked Nigerians. Crypto assets delivered through vouchers, texts, or other cash-based agents could offer a bridge to financial services for those locked out of traditional banking.
However, digital currencies haven’t always been a success in Nigeria. The eNaira was introduced in 2021 by the Central Bank of Nigeria as a central bank digital currency (CBDC) aimed at accelerating cross-border transactions and lowering remittance costs—not dissimilar to the nNGN’s touted benefits. However, one year post-launch, adoption remains lackluster , with less than 0.5% of Nigerians utilizing the digital currency.
Set to pilot within months, the cNGN remains aspirational. And it faces skepticism whether any digital token can truly maintain stable purchasing power if Nigeria’s paper currency continues sliding. Yet with inflation setting new records, Nigeria’s central bank appears ready to allow experiments with novel monetary instruments like stablecoins.