Nigerians’ Rejection of Their CBDC Is aCautionary Tale for Other Countries
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pIn Nigeria, citizens have a href=https://www.youtube.com/watch?v=2mRfgeJ06iU rel=nofollow noopener target=_blanktaken to the streets/a to protest the nation’s cash shortage, further objecting to their government’s implementation of anbsp;central bank digital currency (CBDC). The shortage came about due to cash restrictions aimed at pushing the country into anbsp;100% cashless economy. Yet, instead of adopting the CBDC, Nigerian protesters are a href=https://www.youtube.com/watch?v=OrTYyl2ZTxk rel=nofollow noopener target=_blankdemanding paper money/a be restored./p
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pThe country’s experience strongly suggests the average citizen understands that CBDCs present a href=https://www.cato.org/study/risks-of-cbdcs rel=nofollow noopener target=_blankanbsp;substantial risk to financial freedom/a while providing no unique benefit./p
pIt is no secret that CBDCs have been growing in popularity among a href=https://www.wsj.com/articles/fed-launches-review-of-possible-central-bank-digital-currency-11642706158 rel=nofollow noopener target=_blankcentral bankers/a, a href=https://www.whitehouse.gov/ostp/news-updates/2022/09/16/technical-possibilities-for-a-u-s-central-bank-digital-currency/ rel=nofollow noopener target=_blankpolicy makers/a, and a href=https://www.cato.org/blog/questions-cbdc-cronyism-emerge-fed-launches-pilot rel=nofollow noopener target=_blankconsultancy firms/a in recent years. Yet, for citizens it’s been another story. When the U.S. Federal Reserve solicited comments on CBDCs, a href=https://www.cato.org/blog/update-two-thirds-commenters-concerned-about-cbdc rel=nofollow noopener target=_blankmore than two‐thirds of the commenters/a were concerned about the risks to financial privacy, financial freedom and the stability of the banking system./p
pFurther, CBDCs really don’t add anything novel to the market in terms of benefits for consumers. 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 the abysmal adoption rate in Nigeria, where a href=https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria?sref=zNmRQ0gk rel=nofollow noopener target=_blankless than 0.5nbsp;% /aof Nigerians have used the CBDC. To put that number into perspective, a href=https://qz.com/africa/2187447/more-than-half-of-nigerias-adults-are-monthly-active-crypto-traders rel=nofollow noopener target=_blankmore than 50% /aof Nigerians have used cryptocurrency./p
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pCBDCs may be popular among central bankers, but money is ultimately anbsp;tool for the people. So long as the risks outweigh the benefits, it’s unlikely any CBDC will gain traction in Africa or elsewhere./p
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pstrongCBDC adoption incentives in Nigeria have failed/strong/p
pThe Nigerian government has unleashed anbsp;flurry of tricks to spur adoption but none has proven effective. To its credit, the Nigerian government initially tried to encourage use through modest measures. In August 2022, it a href=https://www.youtube.com/watch?v=RzR6Hw6Lh60amp;t=2004s rel=nofollow noopener target=_blankremoved access restrictions/a so that bank accounts were no longer required to use the CBDC. Then, in October, it a href=https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria rel=nofollow noopener target=_blankoffered discounts/a if people used the CBDC to pay for cabs./p
pYet, neither effort proved to be fruitful. Put simply, Nigerians prefer cash./p
pUnfortunately, the Nigerian government doubled down and moved to more drastic measures by restricting cash itself. In December the Central Bank of Nigeria began a href=https://www.cbn.gov.ng/Out/2022/CCD/RevisedCashWithdrawal.pdf rel=nofollow noopener target=_blankrestricting cash withdrawals/a to 100,000 naira (US$225) per week for individuals and 500,000 naira ($1,123) for businesses./p
pTo make matters worse, the Nigerian government also chose to redesign the currency during this time in a “move aimed at restoring the control of the Central Bank of Nigeria (CBN) over currency in circulation” and to “further deepen the push to [a] cashless economy,” according to anbsp;a href=https://www.cbn.gov.ng/Out/2022/CCD/CBN%20UPDATE%202022%20OCTOBER%20EDITION%20web.pdf rel=nofollow noopener target=_blankCBN press release/a./p
pSo not only are citizens limited in how much they may withdraw, but the commercial banks also don’t have the cash to give out because many are still waiting for the newly designed cash to arrive./p
pWith these restrictions in place, the Nigerian government managed to drain the economy of cash and set the stage for the CBDC to finally have its moment in the spotlight./p
pstrong‘You can’t legislate anbsp;change in behavior’/strong/p
pAnd yet, it didn’t work. Stories of Nigerians struggling with the cash restrictions quickly spread across a href=https://twitter.com/BukolaOyebodeW/status/1628372151056142336?s=20 rel=nofollow noopener target=_blankTwitter/a a href=https://twitter.com/Amina_Ishaku/status/1628350195250388992?s=20 rel=nofollow noopener target=_blankposts/a, a href=https://www.tiktok.com/t/ZTRngg7JW/ rel=nofollow noopener target=_blankTikTok/a a href=https://www.tiktok.com/t/ZTRngCpac/ rel=nofollow noopener target=_blankvideos/a and other social media. Rather than turn to the CBDC, a href=https://twitter.com/ifm1005ib/status/1625935972692008961?s=20 rel=nofollow noopener target=_blankNigerians/a a href=https://twitter.com/NewsWireNGR/status/1625983914123661312?s=20 rel=nofollow noopener target=_blanktook to the streets/a to a href=https://twitter.com/ochonogorIjeom1/status/1625806086577000448 rel=nofollow noopener target=_blankprotest the restrictions/a and cash shortage./p
pThe new notes will, it is hoped, arrive soon, but even then Nigerians are unlikely to find relief. Central bank Governor a href=https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria?sref=zNmRQ0gk rel=nofollow noopener target=_blankGodwin Emefiele/a said, “The destination, as far as Inbsp;am concerned, is to achieve anbsp;100% cashless economy in Nigeria.”/p
pThe company that designed the Nigerian CBDC a href=https://twitter.com/EconWithNick/status/1600876621396860932?s=20amp;t=ylOcTAiDrVjjzZfSGUH53w rel=nofollow noopener target=_blankcalled the cash restrictions anbsp;creative use of marketing/a and said other countries could be expected to take similar steps. Yet, Nigeria should serve as anbsp;cautionary tale for other countries looking to launch CBDCs./p
pa href=https://apnews.com/article/technology-nigeria-government-africa-79af9efa63c7f7d41913f4f8bb63db5f rel=nofollow noopener target=_blankAyokunle Olumbunmi/a, head of financial institutions ratings at Agusto and Co. in Nigeria, put it well when he said that the central bank “doesn’t want us to be spending cash. They want us to be doing transactions electronically, but you can’t legislate anbsp;change in behavior.”/p
pCBDCs may be popular among central bankers, but money is ultimately anbsp;tool for the people. So long as the a href=https://www.cato.org/working-paper/central-bank-digital-currency-assessing-risks-dispelling-myths rel=nofollow noopener target=_blankrisks outweigh the benefits/a, it’s unlikely any CBDC will gain traction in Africa or elsewhere./p
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