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TL;DR Breakdown<ul><li>Nigerians shun CBDC adoption in the country and lean towards a traditional cash economy</li><li>The present situation in Nigeria serves as a foreshadowing of what is to come to other countries working on a CBDC</li><li>The disadvantages of a CBDC-based economy outweigh the advantages of a cashless economy</li></ul>Not all that glitters is gold. The current CBDC situation in Nigeria foreshadows what is to come. Citizens in Nigeria have taken to the streets to protest the country’s cash shortage, as well as their government’s implementation of a central bank digital currency (CBDC).The shortage was caused by cash restrictions aimed at transitioning the country to a cashless economy. However, instead of adopting the eNaira, Nigerian protesters are demanding the return of paper money.<h2 id="header-0">CBDCs- the ugly incoming truth for adopters</h2>CBDCs have become increasingly popular among central bankers, policymakers, and consulting firms in recent years. Citizens, on the other hand, have had a different experience. <a href="https://www.youtube.com/watch?v&#61;2mRfgeJ06iU" rel="noopener noreferrer nofollow">Nigeria’s</a> experience strongly suggests that the average citizen recognizes that the eNaira poses a significant risk to financial freedom while offering no unique benefit.<react-video url="https://youtu.be/zGXPSv3Hrcs"></react-video>When the US Federal Reserve solicited comments on CBDCs, more than two-thirds of those who responded were concerned about the risks to financial privacy, financial freedom, and banking system stability.According to Nigerians, central bank digital currencies do not bring anything new to the market in terms of consumer benefits. To the extent people want it, many currencies are available in digital forms through debit cards, payment apps and even prepaid cards.That much should be clear from Nigeria’s abysmal adoption rate, with less than 0.5% of Nigerians using the eNaira. To put that figure in context, more than half of Nigerians have used cryptocurrency.<h2 id="header-1">Incentives for CBDC adoption in Nigeria have failed</h2>The Nigerian government has employed a number of techniques to encourage adoption, but none have been successful. The Nigerian government, to its credit, initially attempted to encourage use through modest measures. In August 2022, access restrictions were removed so that bank accounts no longer required the Central bank digital currency.Then, in October, it offered discounts for cab rides paid for with CBDC. However, neither effort was fruitful. Simply put, Nigerians favour cash.<react-video url="https://twitter.com/i/status/1628412346879148034"></react-video>Unfortunately, the Nigerian government redoubled its efforts and resorted to more extreme measures by restricting cash. In December, the Central Bank of Nigeria began limiting weekly cash withdrawals for individuals to 100,000 Naira ($225) and businesses to 500,000 Naira ($1,123).To make matters worse, the Nigerian government chose this time to redesign the currency in a “move aimed at restoring the Central Bank of Nigeria (CBN) control over currency in circulation” and to “further deepen the push to [a] cashless economy,” according to a CBN press release.Not only are citizens limited in the amount they can withdraw, but commercial banks also lack the cash to distribute because many are still waiting for the newly designed currency to arrive.<h2 id="header-2">How did that pan out?</h2>Nonetheless, it did not work. Stories about Nigerians struggling with cash restrictions quickly spread on Twitter, TikTok videos, and other social media platforms. Instead of going to the eNaira, Nigerians took to the streets to protest the restrictions and lack of cash.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/21792e4892fd4c01a4e37ed32c9ff09f.png" />In the midst of that, Nigerians will face no relief in the near future. According to Central bank’s Governor Godwin Emefiele, “The destination, as far as I am concerned, is to achieve a 100% cashless economy in Nigeria.”The company that designed the <a href="https://www.cryptopolitan.com/nigerians-turning-to-btc-in-record-numbers/?swcfpc&#61;1" rel="noopener noreferrer nofollow">Nigerian</a> eNaira called the cash restrictions a “creative use of marketing” and predicted that other countries would follow suit. However, Nigeria should serve as a cautionary tale for other countries considering establishing central bank digital currencies.Central bankers may favour CBDCs, but money is ultimately a tool for the people. As long as the risks outweigh the benefits, central bank digital currencies are unlikely to gain traction in Africa or elsewhere.<h2 id="header-3">The dark side of incorporating CBDCs into the global economy</h2>While there are many potential advantages to using central bank digital currencies, there are also several disadvantages that should be considered. Any country considering the adoption of a CBDC system should carefully weigh these advantages and disadvantages before making a decision. Here are some of the most significant disadvantages of incorporating CBDCs into an economy.1. Financial instability: Introducing CBDCs could lead to financial instability. The central bank would need to ensure that the supply of CBDCs is managed carefully to prevent inflation or deflation. This could be challenging, and any mistakes could result in significant economic disruptions.2. Privacy concerns: CBDCs could raise privacy concerns. Because CBDCs are digital, the central bank can track and record all transactions. This could potentially allow the government or other entities to monitor people’s financial transactions, which could be seen as an invasion of privacy.3. Cybersecurity risks: Digital currencies are vulnerable to cyber-attacks. If a hacker gains access to the central bank’s CBDC system, they could potentially steal large amounts of money or disrupt the financial system as a whole. This could have devastating consequences for the economy.4. Disruption of the banking system: CBDCs could disrupt the traditional banking system. If people can hold and use CBDCs directly, they may no longer need to use banks to conduct financial transactions. This could lead to the closure of banks and the loss of jobs in the banking industry.5. Cost: Developing and implementing a CBDC system could be expensive. The central bank would need to invest in technology, infrastructure, and staff to manage the system. These costs could be passed on to taxpayers or users of the CBDC system.6. Adoption challenges: The adoption of CBDCs could be a challenge. People may be hesitant to use a new form of digital currency, especially if they do not understand how it works or if they have concerns about its security or privacy. Such is the case in <a href="https://www.cryptopolitan.com/nigeria-issues-new-cbdc-update/" rel="noopener noreferrer nofollow">Nigeria</a>.7. Inequality: CBDCs could exacerbate income inequality. People who do not have access to digital technology or who do not understand how to use it could be left behind. This could lead to a digital divide that could widen existing economic inequalities.Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

The dark side of CBDCs – a Nigeria case study

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Alte articole publicate pe 7 mar. 2023

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