Since the advent of blockchain technology, also known as cryptocurrencies, numerous governments across the globe have been looking for ways to integrate their monetary systems with decentralized financial networks. One of the ways that they are accomplishing this is by issuing digital currencies backed by central banks ( CBDCs).
According to a survey that was conducted by the Bank of International Settlements in 2021, nine out of ten central banks are conducting research on CBDCs and their potential applications. This should not come as a surprise given that there has always been a need for money to evolve throughout the course of history in response to the constant demand imposed by technological and economic progress.
Although Africa may not have been included in the historical accounts that trace the development of money, the continent's central banks are currently taking the lead in developing and issuing CBDCs.
According to the Central Bank Digital Currency Tracker, 17 African nations have been involved with CBDCs in some capacity, whether it be launching, researching, developing, pilot launching, or even canceling.
Only Ghana, Nigeria, and South Africa out of these other African nations have made any noticeable headway in their development. Ghana and Nigeria, on the other hand, are working on CBDCs that will be available to the general public, whereas South Africa's CBDC is wholesale, which means that only financial institutions will be able to use it.
In this article, the eNaira and the eCedi are contrasted, with an emphasis placed on determining which of the two has the greater potential moving forward.
Despite the fact that the Bank of Ghana (BoG) disclosed in 2019 that it was investigating CBDCs, the BoG did not announce the pilot of its eCedi until just this month. It will involve the use of contactless smartcards and an application for a digital wallet, and it will be tested in the remote village of Sefwi Asafo in Ghana, which has a very limited amount of digital connectivity. Both the card and the application will make it easier to pay for goods and services purchased from CBDC retail locations.
According to Ernest Addison, Governor of the BoG, the choice of Sefwi Asafo was deliberate due to the fact that promoting financial inclusion is one of the primary goals of the eCedi.
The BoG is able to enable offline digital transactions if it is equipped with a contactless smartcard. There are already some residents of the village who pay for goods and services with digital currency, and as the use of this form of payment becomes more widespread, the BoG will collect additional user data and adjust the eCedi as required.
The eCedi is going to have the same value as the Cedi, as stated in the design paper for it; this means that one eCedi is equivalent to one Cedi bank note. Due to the fact that the eCedi is a token-based CBDC that represents the Cedi on the blockchain, this is the result.
Due to the fact that it is a token-based digital currency, it will be stored in wallets. These wallets will be managed by financial institutions, and users will access them using an application on their smartphones.
It is interesting to note that in addition to the application, there will be other ways to use the eCedi. These ways include a contactless smartcard as well as wearables such as smartwatches and wristbands.
The utilization of offline digital transaction models in addition to the use of smartphone wallets is intended to drive adoption in geographical locations that have limited access to the internet. The design paper claims that the offline smartcard functions similarly to cash, which will make its implementation less difficult and more user-friendly.
On Monday, October 25, 2021, the Nigerian government introduced a digital currency called the eNaira, making it the first country in Africa to do so. The eNaira, much like the eCedi in Ghana, is a retail CBDC that is made available to the general public as a means of exchange.
In contrast to Ghana, it was revealed that the eNaira would operate on a permissioned blockchain referred to as the Hyperledger Fabric. This was a significant difference. This indicates that the Central Bank of Nigeria (CBN) will have authority over the eNaira once it is issued.
Even though the chosen blockchain grants the Central Bank of Barbados (CBN) complete authority over the digital currency, in contrast to public blockchains such as Bitcoin, which are managed by a distributed network of computers, the CBN must still employ the services of the Barbadian fintech firm Bitt Inc.
Bitt Inc. will supply the CBN with the necessary knowledge and expertise to deploy, mint, and destroy digital currencies.
The eNaira, much like other CBDCs, was issued with the goals of promoting financial inclusion, lessening the reliance on cash, and making it simpler to make payments across national borders. The mobile application known as the Speed Wallet was used to initiate the launch of the digital currency.
The eNaira is performing better than the eCedi in terms of numbers, but this is an unfair comparison considering that the eNaira has gained country-wide adoption in the seven months since its launch, whereas the eCedi has been in testing in a remote village for less than a month, eNaira has gained country-wide adoption in the seven months since its launch, eCedi has been in testing in a remote village for less than
According to PwC's CBDC Global Index 2022, Nigeria has the most successful retail CBDCs of any country in the world. It was discovered that there have been 700,000 downloads of the Speed Wallet, in addition to the 35,000 transactions that have been completed up to this point.
Despite the fact that the eNaira is ranked as the best retail CBDC by PwC's index, there is evidence to suggest that the majority of Nigerians have not had a reason to use it. Punch reported that visits to businesses in Nigeria's capital city of Abuja revealed that customers and owners of businesses had no idea how the digital currency functioned.
Because it could only be used through a mobile application before its most recent upgrade in May 2022, the eNaira was inaccessible to people who used feature phones and those who lived in regions without Internet connectivity.
According to Statista, in 2022 only 37.3% of people in Nigeria accessed the internet via a mobile device.
The forthcoming upgrade will, according to the plan, incorporate a USSD feature into the digital currency in order to entice users of feature phones to make use of it.
On the other hand, the eCedi has developed contactless smartcards that are able to make digital payments even when they are not connected to the internet. This similarity with transactions that are based on cash could encourage greater adoption because it is so close to what already exists. [Cash-based transactions]
Even though both digital currencies have features that allow for payments to be made across borders, only the eCedi has a clear framework that outlines how it intends to encourage this.
"the eCedi considers CBDC standards making it possible for Ghana to participate in international projects on cross-border CBDCs," as stated in the design paper. "
CBDCs that adhere to the same technical standards can connect with one another and other CBDCs through the use of a standardized interface.
Both of these digital currencies have enabled the project to communicate with pre-existing forms of financial infrastructure. Because they have adopted a model that is similar to the one that enables financial institutions to distribute digital currency, this means that they are responsible for handling KYC protocols and acting as wallet custodians.
This is analogous to the way in which cryptocurrency exchanges like Binance or Quidax act as an interface between users of cryptocurrencies and the blockchain. The ability of different financial institutions to communicate with one another is essential to the success of the new monetary system.
Because contactless payments and wallet applications are already available with fiat currencies, it is possible to achieve financial inclusion with the current system of finance, which is one of the primary goals of CBDCs. Consequently, why do we require CBDCs?
There are some people who believe that CBDCs will make it easier and less expensive to get money. Because CBDCs are only available in digital form, this will result in a reduction in the amount of money spent on printing cash.
In the case of the eNaira, the Central Bank of Nigeria (CBN) disclosed that it would be simpler to distribute relief funds to citizens in the event of a pandemic, such as COVID-19. Despite the fact that financial institutions are in charge of distribution, the CBN would still have direct access to wallets without having to go through these institutions first.
It is one of the primary goals of CBDCs in Africa to increase financial inclusion, and the eCedi has made significant provisions to ensure faster adoption of the digital currency, especially in areas with low connectivity. This gives it an advantage over the eNaira.
However, there is not a significant amount of data available to prove that the offline payment technology utilized by eCedi has been successful. It is recommended that the apex banks of Africa take into consideration the possibility of making data for a comprehensive analysis of CBDCs publicly available. In doing so, specialists are better able to suggest solutions to issues that arise with the new technology.
CBDCs are innovative forms of financial technology; therefore, central banks are obligated to make significant investments in research and development in order to determine the most effective ways to implement them.