Nigeria's Central Bank

Digital Currency
(CBDC)

Project Giant
Nigeria’s Central Bank Digital Currency: Design Considerations

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 Table of Content

# Section Slide #

1 Introduction to CBDC 3 – 12

2 CBN CBDC Project 13 – 19

3 Impact on Financial Institutions 20 - 27

4 Question and Answers 28

Nigeria’s Central Bank Digital Currency: Design Considerations

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Introduction to CBDC

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 Digital currencies is emerging as a new form of money enabled by New Technologies

What is a Digital Currency?

Types of Digital Currencies

Wholesale CBDC Accessible by institutions that hold accounts with the

central bank for interbank or large value transfers
Central Bank Digital
Currencies
Accessible by the general public, including
Issued by and is a direct claim Retail CBDC households and businesses, as a means of
on a central bank
payment and safe store of value

Digital Currencies
Backed by fiat currencies such as
Stable Coins Fiat-backed US$ to stabilize its value e.g.
Tether
Uses mechanisms to
stabilize its value Backed by asset such as
Private Digital Asset-backed commodities or crypto-assets to
Currencies stabilize its value e.g. DAI
Issued by private entities
Other Coins Algorithimic Uses smart contracts to stabilize
its value e.g. Terra
Nigeria’s Central Bank Digital Currency: Design Considerations
Not backed by any asset e.g.
Bitcoin 4
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 What is a Central Bank Digital Currency

• CBDC’s are new variants of Central Bank money that are different from
physical cash and reserves/settlement accounts. CBDC is a digital
representation of sovereign currency that’s issued by a jurisdiction’s
monetary authority like the Central Banks.

• It’s a direct liability of the Central Bank that issued it.

What is a CBDC?
• CBDCs are not meant to replace cash and bank deposits but to coexist as
additional form of Central Bank issued Money

• CBDC can be broadly categorised into Retail and Wholesale CBDC

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Comparism of CBDC and Cryptocurrency
Comparison of CBDC and Cryptocurrency 6

CBDC Cryptocurrency

Issued by a monetary authority like

Central Banks and they decide the Private money with no central authority
rules
CBDC is backed by law i.e legal
tender Not a legal tender

CBDC is a direct liability of the It is not a liability of the Central Bank or

Central Bank any its regulated institutions

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 Introduction to CBDC

Characteristics of Central Bank Digital Currency

A 'retail' CBDC Retail CBDC Wholesale CBDC

would be used like
This is used to enable transactions between financial
Broad Use
a digital extension Cases
This is used in the same manner as bank notes to make
retail payments: P2P and B2P
institutions, central banks and entities holding accounts
with central banks
of cash by all
people and
• Financial Inclusion
companies, • Replace need for “change”
• Interbank Settlement
whereas a • Mobile Wallets
• Real Time Gross Settlement Improvement
• Distribution of stimulus
'wholesale' CBDC Specific Cases
• Micro Lending
• Payment Clearing
• Securities Clearing
could be used only • Payment Aggregation
• Cross Border Interoperability and Payments
• Programmable money
by permitted • Cross Border Payments

institutions as a
settlement asset in • Suitable for central banks in emerging economies • Suitable for central banks in advanced economies
the interbank • Presents potential threats to monetary policy and financial stability • Offer effective retail payments and settlement systems with
market. real-time and highly available operations
• Generally meant for general public and average consumers • Suitable for exchanging and trading among central banks and
Differences conducting daily transactions private banks

• Benefits of traceability, availability and anonymity • Benefits of faster cross-border transactions

• Retails CBDCs could lower barriers to financial inclusion but may • Could prevent some of the more disruptive impacts of CBDC on
Nigeria’s Central Bank Digital Currency: Design Considerations
limit the financial intermediation role currently played by banks the financial sector but may limit efficiency gains and broad
access to CBDC relative to a retail model 7
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 Snapshot of CBDC Projects Across the World
Over 80% of Central Banks are exploring CBDCs
These are some selected countries involved in CBDC at advanced stages

Research
Key Attributes SystemPoC
Architecture Live & Regulations
Governance, Standards

 USA
 Canada  Bahamas
GLOBAL OVERVIEW OF CBDC ACTIVITES

 Great Britain
 South Africa  Eastern Caribbean
 Mexico
 Japan  China
 UAE
 Ecuador
 Jamaica
 Sweden

 Singapore

 Hong Kong

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 CBDC Benefit: Economy, Government and Other Stakeholders

What CBDC means for

1 The Economy 2 The Government 3 Other Stakeholders

Potential to reduce cash Deepens digital financial Reliable mechanism to Reduces tax leakages from tax Reaffirms Participants’ Reduces inefficiencies from
handling costs by 5- 7% inclusion distribute fiscal stimulus to evasion and illicit money flows contribution to nation dealing with physical cash
citizens building and financial
enablement

Promotes digitisation of cash Promotes formal cross-border Reduces overall indirect cost Promotes and support the Creates sustainable value Unlocks new revenue and
and development of e- payments for efficiency, of cash on the broader implementation of pools by unlocking new growth opportunities
commerce convenience and affordability community Government objectives market segments

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 Potential Roles of Strategic Stakeholders

The Interconnected Nature of the Payment Landscape Illustrative

To act as agents fostering financial Card

inclusion in their various business Associations For payment processing
locations SMEs (Mastercard
and Visa)

For identity and address verification, Deposit To act as acquiring and settlement
APIs for business and customer FINTECHs CBN Money banks, provide access to bank
intelligence Banks payment APIs

For network connectivity, information For customer identity verification, PoS

security, server acquisition and Infrastructu transaction aggregation, enable
re NIBSS
maintenance interbank transfers
Providers

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CBN CBDC Project

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 The CBN Journey to CBDC

• The CBN Governor had announced that the Bank will be working on a
Central Bank Digital Currency (CBDC) during the 306th Banker’s
Committee meeting.

The press briefing delivered by the Director, IT Department at the end

Background •

meeting, further explained that the Bank has been conducting

research on CBDC since 2017 and may conduct a proof of concept
before the end of 2021.

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 CBN CBDC Project

Project Name • Project Giant

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 CBN CBDC Project

The CBN Digital Currency Name • eNaira

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 CBN CBDC Policy Objectives

i. Macroeconomic Management & Growth

ii. Cross Border Trade Facilitation
CBN Policy iii. Financial Inclusion
Objective for iv.
v.
Monetary Policy Effectiveness
Improved Payments Efficiency
eNaira vi. Revenue and Tax Collection
vii. Remittances Improvement
viii. Targeted Social Interventions

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 CBN Expectations

 Parity of value

 Access

 Balance/Transaction Limit

eNaira
 Acceptability

 Distribution

 Exchange

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 CBN CBDC Roadmap

Feasibility Educate & Inform Full Launch

Assess & Design of
& Viability Pilot Roll-out of the CBDC
Socialize the CBDC
Proof of Concept

1 2 3 4 5

Define the Technological Conduct POCs Socialise and Complete full

objectives infrastructure for identified engage relevant roll-out of CBDC
required to use cases for stakeholders across the
country
deliver and feasibility and for feedback
maintain the viability and complete
CBDC the design

Nigeria’s Central Bank Digital Currency: Design Considerations

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Financial Institutions and CBDC

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 Traditional Banking Model

CURRENT ROLE

Central Bank

Real Money

Banks

Bank’s Products +
Services

End User
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 Retail CBDC is a Direct Claim on Central Banks Just like Cash

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 The eNaira CBDC lifecycle

The eNaira CBDC lifecycle entails a 4-step process to full implementation and adoption

Issue CBDC CBN designs, creates and stores CBDC

CBN distributes CBDC to

Financial Institution and licensed
service providers
Distribute
Financial Institutions and licensed
CBDC service providers provide CBDC to
individuals and businesses

Individuals and businesses transfer Individuals transfer value in real time

Transact with value in real time via existing and while offline to other individuals and
CBDC future payment channels (e.g. mobile) businesses

Monitor and CBN withdraws CBDC

CBN reconciles
CBN issues new CBDC with
Maintain CBDC issued CBDC modernised technical and security
attributes
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 The Two-Tiered Retail CBDC Model

Illustrative: Two-tiered Model for CBDC will enable Public-Private Partnership wherein the CBN designs the a eNaira and
distributes through Regulated Financial Institutions
Central Bank
Issues CBDC units
Security and Compliance Frameworks
Identity Management and AML

API Access
Secure personal data

Wholesale Transactions
Intermediaries
 Requests CBDC from CB
 Provide wallets to end-users and Maintains wallets
 Process transactions

Individual Digital Wallet Business/ Merchant Business/ Merchant

Individual Hardware
Digital Wallet
Wallet Hardware Wallet

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 Existing Vs CBDC based Payment Landscape

CURRENT FUTURE (WITH CBDC)

The introduction of
Central Bank CBDC will bring:
• New approaches to
CBDC
processing payments
Real Money
• New bank and non-
Banks /
bank players
Non-banks
• New possibilities for
Banks
payments
• Integration with new
Bank’s Products + systems
Services
• A new range of
banking services
End User

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 Gains for Financial Institutions 24

 Enhanced operational efficiency

 Lower cost of operations and reduced cost of cash management
 Improved visibility and insight of transaction data

 Diversification and Synergy

 Innovation opportunities in the financial system
 New business opportunities arising from emerging business models, financial
products and services
 Financial Inclusion
 Potential increase in deposit/customer base due to improved financial
inclusion

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 Gains for Financial Institutions 25

 Functionality
 Real time payment and settlement
 Availability of options for accessing CBN Money
 Protecting regulated FIs from the risk of new forms of private money creation

 Coexistence
 More efficient complementary system to legacy payment system

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 Potential Risks & Mitigations

1
Associated Cost and Risk of
Medium to long-term pay off in increased efficiency of operations would offset initial
deploying /on-boarding a new
outlay.
payment platform
2

Risk of Disintermediation Limits on eNaira holdings

.
3

Disruptive Competition Regulatory framework and compliance mechanisms

Operational and Cyber Security Treated as a National Critical Infrastructure

Risk
5

Interoperability risk Coexistence of traditional payment system and CBDC system.

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 Questions and Answers

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 Nigeria’s Central Bank Digital Currency: Design Considerations

This document is for CBN internal consumption