DIGITAL CURRENCY: BINOCULARS ON THE FUTURE OF MONEY  

There's probably nothing wrong with a country embracing a policy fad, but in the case of Nigeria's digital currency adoption, there was evidently unjustifiable haste... The Nigerian government had made the decision to be the financial guinea pig for the globalist CBDC scheme and so far, it has failed and that’s the good news. 

Aderemi Medupin 

The Evolution of Money and the Growing Digital Economy

Let us start with the basic question: what exactly is money? Before something can be considered money, it must possess three essential characteristics: it must serve as a store of value, a medium of exchange and as a unit of account. Money has come in many different forms over the course of the centuries. Shells, corals, cocoa beans, gold, gems and paper money –all physical items-performing the needed function. What all these forms of money have in common is the trust to be able to exchange it against something of value in the future. Historically, this trust was based on the supply of these units of exchange being limited and not easily falsifiable.

In the explanation provided in standard economics texts, modern economies are typically based on “fiat” money, which is any legal tender designated and issued by a central authority. Although it is a relatively recent development, first used around 1000 years ago, today it is the dominant form of money. Fiat money relies on the backing of Governments to ensure the acceptance of its currency as legal tender. It has value, in part, because Governments require that taxes be paid in legal tender, and this ensures that there will always be a demand for it. People are willing to accept it in exchange for goods and services simply because they trust this central authority; trust is therefore a crucial element of any fiat money system. Hence, although fiat money has no intrinsic value, it still represents a store of value -as a promise to pay- such that its paper or coin representation can be exchanged for items of equivalent value, at a relatively stable rate of exchange allowing for future date purchases. This confidence is typically upheld by nation states and their associated Central Banks.

Beyond the level of fiat money, transactions in the modern economy have increasingly assumed the character of electronic transfers culminating in the emergence and growing popularity of digital currency. With the advancement of technologies, especially computer and internet, digital mode of transaction has come into prominence.

Debut of Digital Currency and its types

In an updated clarification on the platform of Forbes Magazine of February 16, 2023, digital currency is any currency that’s available exclusively in electronic form. In the explanation of the authors of the article on the subject of that date, what differentiates digital currency from electronic currency is that the former never takes physical form. As illustration, if you go to an ATM right now you can easily transform the electronic record of your currency holdings into physical Naira (in Nigeria) whereas in the case of digital currency, it never leaves a computer network, and it is exchanged exclusively via digital means.

There are three main types of digital currency, namely: crypto currency, stable coins and central bank digital currency (CBDC) - the last being the one in focus here. With the rapid spread of technology in life and the necessary need to increase the speed of payment processes, confidentiality, and privacy, crypto currencies appeared. Cryptocurrency is an intangible digital token that is recorded using a distributed ledger infrastructure, often referred to as a blockchain. A crypto currency is a virtual and intangible currency, in which transactions are made through the internet; these currencies are characterized by decentralization, transparency, and privacy. The term “crypto” refers to a complicated cryptography which allows for a particular digital token to be generated, stored, and transacted securely and, typically, anonymously.

Bitcoin was the first crypto currency and it continues to lead all the cryptocurrencies, in terms of market capitalization, user base and popularity. As rendered by Rashmi Priya Sharma and Arabinda Sharma in their article, “Using Crypto Currency and Associated Advantages and Disadvantages”, published in International Journal of Economics & Finance Research & Applications Vol. 2, Issue 2 -2018, Bitcoin is a form of currency with no physical form, created and held electronically. It can be used to buy things electronically and in that sense it is no different than conventional national currency, such as the Ghanaian Cedi or Nigerian Naira. It is designed for secure financial transactions that require no central authority, no banks and no government regulators completely transparent and easy to set up.

The Bitcoin payment system and currency was proposed in October 2008 by a person or persons using the pseudonym Satoshi Nakamoto which became operational in January 2009. The system was heralded as a revolutionary solution to challenges apparent in previously proposed electronic cash systems. Bitcoin and other crypto currencies share some characteristics of money in that they are difficult to falsify and their supply is limited. But rather than relying on physical scarcity or prudent central banks, they use technology to deliver these features. With the rapid spread of technology in life and the necessary need to increase the speed of payment processes, confidentiality, and privacy, cryptocurrencies appeared.

Without intent of inflicting the pain of undue technical jargons on the reader, suffice to report that, whereas traditional monetary systems require the Central Bank to maintain a ledger of transactions within the commercial banking system that can be used to verify transactions between customers of the commercial (money deposit) banks, a distributed ledger-based digital currency system uses standard cryptographic techniques to maintain a public record of all transactions ever carried out within that system. Such a system does not require a central authority to maintain the integrity of the ledger of transactions, instead, the integrity of the public ledger is ensured through the mathematics of cryptography. Ii is pertinent to note, as acknowledged by Bissessar that Bitcoin has a reputation as being able to support untraceable financial transactions, which is one reason that an early, popular use of it was as a means of supporting online trade in contraband via the “dark web”, although now the veil is being systematically removed through the cooperation of regulators and operators. Thus, though bitcoin users may not have their name directly attached to their funds and transactions, the fact that every transaction is publicly visible in the blockchain means that, with some effort, it is generally possible to trace funds to the entities that control them.

As an analyst couched it, Bitcoin is “designed by people for people” and the rules are imposed on everyone through one another's mutual distrust.  Previously before the invention of Bitcoin, it was impossible to deal electronically without a trusted third party, for example, PayPal was used as a trusted third party. It is Thomas Redshaw who in the piece, “Cryptocurrencies: a view from the left”, provides a unique cultural perspective on the origin and impact of cryptocurrency, noting, how “the origins of cryptocurrency lie with utopian libertarians attempting to construct a basis for the ultimate free market. Bitcoin was designed to be a currency that no centralised organisation, let alone nation state, could control. Instead, digital assets could be exchanged across peer-to-peer networks run, in theory, by anyone with a computer”.  I wonder if this makes some sense to my esteemed reader. Noteworthy, as documented on CoinMarketCap platform, there are more than 9,000 crypto currencies available in today’s e-commerce space and they are extremely volatile, as their prices never stabilize.  For instance, Bitcoin's price rose from just under $5,000 in March 2020 to over $63,000 in April 2021 only to fall by almost 50% over the following two months. Nonetheless, it remains the most popular crypto currency. Many reasons encourage the trend to use cryptocurrencies, among which are confidentiality and security.

At this juncture, there is need to locate the genesis of cryptocurrency in the financial crisis of capitalism. As E.S.Praser faithfully recalled, interest in Bitcoin took off in the wake of the 2008-2009 financial crisis when trust in governments, central banks, and in big private banks was very low, arising from the reckless lending of financial institutions that effectively crashed the world economy. In practice, Bitcoin tries to replace trust in a public institution with trust that is created through a public consensus mechanism; all transactions are posted on public ledgers that are maintained on multiple computers and visible to the entire community of Bitcoin users who can agree that a transaction is valid and if not reject it. It is pertinent to restate the fact that crypto currencies are not issued by a central authority; they are almost always decentralized, meaning they can't be regulated by a single authority. However, Stablecoins differ slightly in the sense that some are centralized and traditionally backed by fiat currency in an off-chain bank account that functions as the reserve backing the on-chain tokens; nonetheless, in the final analysis they constitute an integral part of the crypto currency. Stable Coins are a type of crypto currency that always holds a stable price. They are created to take on the unstable crypto market scenario and ensure a stable ground for all. As pointed out on the Blockchain platform, these coins are slowly gaining popularity and reestablishing people’s faith in digital currencies. Unlike Bitcoin, Stablecoins’ prices remain steady, in accordance with whichever fiat currency backs them. In this vein, therefore, Stablecoins can be defined as cryptocurrencies that aim to maintain a stable value relative to a specified asset, or a pool or basket of assets. It is pertinent to note that there are different types of Stablecoin-although three in the main, with their respective technical names none of which will get further attention here

Coming to our main subject, the Central Bank Digital Currency, which is a digital replacement for physical currency notes and coins, it is issued and overseen by a country’s central bank-such as the Central Bank of Nigeria’s eNaira (more on this shortly). According to the IMF and Reuters, close to 130 countries are exploring CBDCs at one level or the other; however as of June 2023, only eleven countries had truly embraced the scheme, Nigeria being one of them, and the only country in Africa. As recently as November 2021, the European Parliament – in its Briefing Paper, “Stablecoins: Private-sector quest for crypto stability”-was still reporting on how, “owing to a range of factors, not least their significant volatility, crypto currencies have not been adopted on a massive scale, but instead are used largely for speculative purposes”. By October 2021, Nigeria had rushed into the CBDC train. The rush could be why Ledger Insights pointed to the fact that more than one year after its launch, Nigeria's CBDC adoption remained “disappointingly low,” citing the IMF.

It is pertinent to highlight the basic differences between a CBDC and Crypto currency as done by Ganesh S. Adgaonkar in the article, “A Study on Advantages and Disadvantages of Digital Currency in India with Special Reference to Rupee”, published in International Journal of Research Publication and Reviews, Vol 3, no 11, November 2022, captured in the following Table.

   Table: Differences between a CBDC and Crypto currency

Benefits of Digital Currency

Forbes Advisor-USA has listed the benefits and disadvantages of Digital Currency as follows: (i) Faster payments-than the traditional systems of ACH or wire transfers which can take days for financial institutions to confirm a transaction; (ii) Cheaper international transfers –typically, international currency transactions are very expensive. Individuals are charged high fees to move funds from one country to another, especially when it involves currency conversions, digital currency dispenses with some processes thereby fast tracking the consummation of transactions; (iii) 24/7 access- during weekends and outside official working hours, the current system takes more time because banks are closed and cannot confirm transactions; (iv) Support for the unbanked and under-banked- this is an inclusiveness lacking in the current  system who can now access their money and pay their bills without extra charges; and (v) More efficient government payments- given that  with a CBDC,  the government can make payments to deserving citizens with less paper work.

Weaknesses of Digital Currency

We have the disadvantages of digital currency to include the following: (a) Too many options-there are so many digital currencies being created across different blockchains –each with its own limitations; so, it will take time to determine which may be more appropriate for certain cases and which will qualify for mass adoption; (b) Steep learning curve-digital currencies require work on the part of the user to learn how to perform fundamental tasks, like how to open a digital wallet and properly store digital assets securely; (c) Expensive transaction-Cryptocurrencies use blockchain where computers must solve complex equations to verify and record transactions. This takes considerable electricity and gets more expensive as there are more transactions; and (d) Price volatility-Cryptocureency prices and values can change suddenly-which is why it is widely believed that businesses may be reluctant to use it as a medium of exchange. More serious, there are a number of risks associated with the increased use of digital currencies, including money laundering, terrorism financing, consumer protection, and the use of digital currencies to fund trade in illicit goods, such as drugs, weapons, and child pornography. Thus, in the words of Thomas Redshaw, cryptocurrencies are becoming so prevalent in the trade for illicit goods that ‘crypto-markets’ are now a key focus for criminologists.

Given that our interest is primarily the central bank digital currency, addressing a specific country case registers as legitimate; we opt to look at Nigeria.

A Brief on the Nigerian Experience

The eNaira was launched and activated on 25 October, 2021 by the Nigerian President under the slogan: "Same Naira, More Possibilities".. In assessing the timeframe for embracing CBDC by Nigeria, one’s mind cannot but flash back to the currency redesign policy heaped on the citizenry in 2022, even as the then CBN governor had proclaimed that “the destination, as far as I am concerned, is to achieve a 100% cashless economy in Nigeria.”. In October 2022, as the reader may recall, the CBN governor announced the apex bank's plan to redesign and circulate a new series of three banknotes out of the existing eight.  The CBN governor explained that the decision was reached due to persisting concerns with the management of currency in circulation — particularly those outside the banking system. The redesigned N200, N500 and N1000 notes were due for circulation on December 15, 2022. However, the report provided by The Cable-an online mass medium- exposes the uncertainty and chaos that marked the exercise. Here is a partial list of the reported timelines: On October 28, the Minister of Finance, Budget and National Planning, declared that the CBN did not consult the Ministry on the policy; two days later on October 30, the President said the CBN had his backing to redesign the Naira notes. Furthermore on November 10, the President said there was no going back on the redesign of the notes and on November 23, unveiled the redesigned Naira notes. On December 15, banks began dispensing the redesigned notes to customers across the country and on January 24, the CBN Governor insisted there was no going back on January 31 deadline for old Naira notes. Five days later on January 29, the CBN extended the deadline for the swap of old naira notes to February 10, giving a 7-day extra grace period for direct deposit with CBN. On February 3, the Governors of Kaduna Kogi, and Zamfara states sued the Federal Government over the Naira redesign policy. On the same day, the CBN said it had no plan to extend its February 10 deadline. Curiously, on February 6, a Federal Capital Territory high court in Abuja restrained the CBN from extending the deadline on the use of old Naira notes. Interestingly, however, on February 8, the Supreme Court restrained the CBN from enforcing the February 10 deadline following an ex parte application brought by the states. In what served as relief, on February 10, the Attorney General of the Federation announced that the FG would obey the Supreme Court’s February 8 order. Following experienced scarcity of the new notes, on February 11, the CBN made a public statement that it had the capacity to print required new naira notes, but the scarcity persisted, even as the President remained silent on how he intended to address the cash scarcity.

Surprisingly, on February 14, the CBN insisted on February 10 deadline for old notes validity — despite Supreme Court ex-parte order. The following day-February 15, the Supreme Court adjourned the case against the CBN to February 22, but ruled that old notes remained legal tender. On February 16, the President addressed the nation, extending the validity of old N200 notes till April 10. Less than one week later, specifically on February 21, three states initiated contempt proceedings against the CBN Governor and the Attorney General of the Federation for flouting the Supreme Court order. In a sobering development, on March 2, the President apologized to Nigerians over the naira redesign policy. The following day, March 3, the Supreme Court ruled that old N200, N500 and N1000 notes remained legal tender until December 31. Consequently, on March 7, Commercial (money deposit) banks resumed dispensing old Naira notes to the public. On March 11, ten states filed contempt charges against the federal government, and the CBN over their non-compliance with the Supreme Court judgement on the Naira redesign policy. To end the macabre national dance, on March 13, the CBN finally spoke on the Supreme Court order, saying that the old Naira notes remained legal tender till December 31, 2023.

The Cable footnoted the timeline report with the observation that, “While the back and forth on the naira redesign policy and deadlines lasted, violent protests erupted across several parts of the country as the cash scarcity hit Nigerians hard”. What I think deserves the greatest attention in all the unfolding scenario of extreme fluidity is the evident incoherence at the highest level of policymaking in Nigeria.

At the global scene of analysis, the skeptical view of Timothy Alexander Guzman, in the article, “Are Central Bank Digital Currencies (CBDC) Destined to Fail?”, registers as quite instructive with  the author asserting that the average human being on earth understands that CBDCs is a bad idea, even in the United States where two-thirds of the population believes almost anything that their government tells them to believe are skeptical of CBDCs according to the Cato Institute, a think tank who also published an article by Nicholas Anthony on the findings of a survey that was conducted by the US federal Reserve Bank on how people view CBDCs.  Here is what they found, “Specifically, more than 66 percent of the 2,052 commenters were concerned or outright opposed to the idea of a CBDC in the United States “.

There’s probably nothing wrong in a country embracing a policy fad but in the case of Nigeria’s digital currency adoption, there was evidently unjustifiable haste. On this score, the harsh verdict of a voice very critical of the entire CBDC scheme shared on the platform of Global Research is sobering as it notes that: The Nigerian government had made the decision to be the financial guinea pig for the globalist CBDC scheme, and so far, it has failed and that’s the good news. The bad news is that certain governments are still moving forward with the idea of using government-issued digital currencies. In the case of Nigeria, its citizens rejected their government’s plan to issue CBDCs by restricting cash in efforts to create a cashless society and so far, it seems that it has failed in epic fashion according to an opinion piece by author Nicholas Anthony that was published by coindesk.com

This is followed with the contentious but interesting report that: To its credit, the Nigerian government initially tried to encourage use through modest measures. In August 2022, it removed access restrictions so that bank accounts were no longer required to use the CBDC. Then, in October, it offered discounts if people used the CBDC to pay for cabs.  Yet, neither effort proved to be fruitful. Put simply, Nigerians prefer cash. Fair reporting calls for a balanced representation of perspectives; this is why it becomes obligatory to cite a positive entry by  who reported how during the previous week, the Central Bank of Nigeria announced new features for its central bank digital currency (CBDC), the eNaira, in an effort to boost its service offerings and continue driving user adoption. The CBDC will now support NFC technology, the same technology used by Apple and Google Pay for contactless payments. It also enables peer-to-peer (P2P) transfers. . Additionally, the central bank will allow users to restrict payments with enhanced programmability functions, including for government aid programs such as farmer loans.

Peeping into the Future

On October 19, 2021, Eswar S. Prasad· of Cornell University pointedly asked: “Are Cryptocurrencies the Future of Money?” His response contains the objective apprehension of ongoing concerns about the volatility of the price of cryptocurrencies, their use for illegal and illicit transactions, their environmental impact, and the potential they pose for disrupting financial systems. At the same time, we know that, with the advancement of technologies, especially computer and internet, digital mode of transaction has come into existence and gained rapid prominence. The emergence and popularity of digital currency is explained in a very interesting way in a UN document, that: The question (now) arises: if a portion of the population places confidence in an alternate system of currency, can such an alternate currency be considered as money? The arrival of new payment technologies with decentralized systems for ledger management, payment verification and currency supply, presents an opportunity to revisit traditional thinking on electronic payment systems and the fundamental character of money. These decentralized systems are called digital currency, with Bitcoin being the first and, to date, among the most prominent.

Between 2018- when the Sharma couple opined that the emergence of bitcoin is still shrouded in mystery, and now, although essentially an exotic asset and common transactions are still limited, while mostly used for speculative purposes given its volatile nature, a lot of change has occurred. At the core of cryptocurrency is Tether, which is essentially a bank for people looking to make quick money by trading cryptocurrencies (because most banks don’t deal with crypto companies). Now, concerns are growing about the potential consequences of a cryptocurrency crash. Expectedly, the potential impact of such a crash grows as cryptocurrency becomes more enmeshed in global finance and everyday life. In his analysis, Thomas Redshaw raised the alarm on perhaps the most worrisome impact of cryptocurrencies as being their ruinous levels of energy consumption. This is because, the amount of energy used to power the bitcoin network alone is more than what many countries use in a year. As he explains, the system works on the following logic: Hundreds of thousands of hardware operators known as ‘miners’ compete with one other to process data on the bitcoin network, incentivised to do so by rewards in units of bitcoin. To successfully process data and receive these bitcoins a miner must set their computer to constantly generate random sequences until one of them effectively wins a lottery operated by the network itself. The more powerful your computer, the more likely it is to generate the winning ticket. This has led to an arms race between miners, the mass production of specialised hardware and the emergence of giant ‘mining farms’–warehouses full of powerful computers all generating random codes with the aim of processing data for the bitcoin network. Historically the vast majority of bitcoin mining has taken place in China due to cheap access to electricity. Recently, though, the rapid growth of an industry that is both notoriously difficult to regulate and exhibiting all the signs of a dangerous speculative bubble has led the Chinese authorities to clamp down on both mining and trading activities, enforcing a complete ban on cryptocurrency from June 2021.

We end on the note of the rhetorical question posed by Michael Hudson, the renowned radical economist, which is: What is crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers? I come in peace, please

.