In a strategic move to bolster the country’s digital currency landscape, several Nigerian commercial banks have expressed their intent to develop a stablecoin named cNGN, aiming to complement the eNaira, Nigeria’s central bank digital currency (CBDC).
Scheduled for launch in January 2024, cNGN is set to maintain a 1:1 peg to the naira, offering stability in value. The stablecoin will be constructed on a publicly distributed ledger, facilitating interoperability with diverse payment systems.
Stablecoins, known for their value pegged to fiat currencies, provide investors with a hedge against the volatility commonly associated with digital currencies.
Key participants in the collaborative project include prominent banks such as Access Bank, Sterling Bank, Providus Bank, and First Bank. Technical support for the initiative is expected from ecosystem players like Interstellar, Convexity, Kora, Interswitch, and BudPay, making it one of Nigeria’s most extensive collaborative projects in the payment sector.
While specific technical details are yet to be revealed, industry observers anticipate various use cases for the consortium-backed stablecoin, including its potential deployment for interbank settlements. Although its interoperability features suggest suitability for cross-border payments, its application for domestic retail transactions remains uncertain.
The introduction of cNGN for mainstream retail use creates a direct competition with the eNaira, raising concerns about the future of Nigeria’s CBDC project. Consortium participants, however, emphasize that cNGN will operate as a complement to the eNaira, not as a substitute.
Since its 2021 launch, the eNaira has faced slow adoption rates, with former central bank officials attributing the challenges to commercial banks. Analysts argue that, despite its limited functionalities, cNGN might pose a significant challenge to the eNaira’s viability, given commercial banks’ track record in introducing new offerings.
Central Bank Approval Marks Milestone
The revelation of the stablecoin project gained traction following the Central Bank of Nigeria’s (CBN) approval for banks and financial institutions to offer services to virtual asset service providers (VASPs).
Under the CBN’s guidelines, banks can now provide VASPs with bank accounts and designated settlement accounts, as well as offer foreign exchange conduit services to digital asset firms.
However, VASPs must meet specific minimum standards to access banking services from Nigerian lenders, including obtaining a license from the country’s Securities and Exchange Commission (SEC) and registering with the Corporate Affairs Commission (CAC).
By: Delino Gayweh
Serrari Financial Analyst
December 8, 2023
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