The Truth About CBDCs and the Future of Money

Money was never absent in the life of human beings. Since the olden times of trading by barter, cowries, coins, notes in paper and of late, digital transactions, money continues to change its form. Whenever there is a change in money, it alters the manner in which people live, conduct business, as well as the method in which governments manage their economies. The new type of money is being talked about and experimented all over the world today. It is referred to as CBDC meaning Central Bank Digital Currency.

Hearing about CBDCs at first generated the idea of yet another dolled-up cryptocurrency like Bitcoin. However, in reality, the CBDCs are unlike anything. Human hands do not make them and neither are they made by anonymous groups. They are produced and managed by central banks, so the issuers of the currency that we currently use will manage CBDC as well. In layman language, CBDCs would be a digital version of our naira notes but, that the naira would be in all-digital format, with no physical representation.

So, why are we talking about CBDCs in the world? This is because it is so easy to explain that the money is evolving. Lots of individuals do not carry money any more. We have mobile banking, transfers and online payments. The majority of us in Nigeria are already using USSD codes or applications to transfer money rather than walking around with large sums of money. However, even the banking system, which we employ nowadays, is not very fast, cost-effective, and can be not so reliable. By promising to make payments less expensive, more prompt, and more secure, CBDCs are basically destined to stop these ills.

The Nigerian government began issuing the CBDC as one of the earliest in Africa. It was named the eNaira. The concept was that it would make life easier for Nigerians providing us with a secure and easy means of paying in a digital place even in the absence of a bank account. However, being truthful, the majority of the Nigerians are yet to use it. Most are not confident in it. Others do not even understand how it works. Thereby, the question is: what can actually be the future of money and are CBDCs really worth the fuss or another government experiment, that will go away?

Image Source

To know the truth about CBDCs we must consider both the bright and the dark. Well, on the positive side first. A payment using the CBDCs can be quicker. Consider how you might transfer money to a dear person in another nation and he/she gets it instantly without wasting days and spending much money on bank charges. It is what can be achieved with CBDCs. This can be a great blessing in Nigeria where so many people rely on foreign remittances sent home by relatives. There is no longer a long remittance queue. Strictly, there is no longer any tax on heavy middlemen.

Second, CBDCs may contribute to the combating of corruption and crime. Since all transactions are made in digital records, illegal money cannot be concealed by people easily. Governments may establish the source as well as the destination of the money. When there is corruption deep rooted in our system as is the case in a country like Nigeria, such transparency can be very strong.

Third, financial inclusion is possible by providing more citizens with access to financial services through the use of CBDCs. A huge proportion of Nigerians remain unbanked. These women do not own bank accounts, although majority of them own mobile phones. They may keep and transfer money with CBDCs using their phones without going through a bank. It can help decrease inequality and the ability of more individuals to enter into the modern economy.

Do not deceive selves however. CBDCs have risks associated with them too. Control is the first risk. When government would be able to observe all transacted business, there will be no privacy. Today when I hand my friend money, no one is interested in what I hand him. However, in the case with CBDCs, each action is traced. This has the potential of putting governments in excessive control of our lives. Vision scare the same future where government can order to freeze your money, just because you have told something against them. It is a very high risk particularly in a country where the freedom has been threatened to begin with.

The issue of trust is another problem. Banking is not a trust by many Nigerians to start with, and government financial systems they certainly do not trust. The eNaira is no new thing, so where are we with its usage? Individuals fear that it will not be a good job, or that they will lose their wealth. It requires governments that want CBDCs to pass the test of real trust. They have to demonstrate the system to be secure, just, and user-friendly.

Then, there is the problem of technology/ infrastructure. The problems of electricity and the internet are still persisting in Nigeria. What about a farmer in a remote place having no network? How will he use CBDCs? What about those people that do not even have smartphones? As long as these issues are not addressed, CBDCs could leave individuals in the rural areas in the dust.

The other threat is the effect that CBDCs would have on commercial banks. By letting people have wallets directly with the central bank, via a CBDC wallet, people might not require regular banks anymore. This will make the commercial banks weak and even the financial sector employment will be affected. The banks can react to this by increasing fees or cutting on services, thereby causing other problems to the economy.

What then does that mean in terms of the future of money with CBDCs? The reality is CBDCs are here, with or without our consent. Nearly all the larger nations are already behind it, having digital yuan in China, digital euro being tested by the European Union and a digital dollar discussed in the US. Nigeria owns the eNaira. Will the use of CBDCs become viable? That is not the question, but how people will use this system, and what will it do to the common person, harm or good.

In the case of Nigerians, the future regarding CBDCs will be determined depending on how the government manages it. Failing to make it easy, safe and useful will lead to its failure in case they inflict it on people. Nigerians, are intelligent people, we shall not utilize what is not working in our favor. However, when they can demonstrate that CBDCs will save us valuable time, minimize the expenses and improve our lives in the real sense, more people will absorb it.

Meanwhile, we as citizens are not supposed to be blind followers only. There are questions that we need to put up. Our rights and privacy require power laws and we must insist on them. Government should not use CBDCs as a means of control. They are supposed to be an empowerment tool. We have to make the point that CBDCs should be accompanied by the actual upgrades to our economy namely: stable electricity, better internet, and robust financial literacy among everyone.

Granted, the digital future of money is digital. It is obvious to that extent. However, the brightness or darkness of such a future will depend upon the usage of CBDCs. To me, as a Nigerian woman looking at the way the world is transforming, there is hope and fear. The dream that someday I will be able to remit money anywhere in the globe, in a minute, with ease. There is fear that someday it might be used to shut me up, to spy on me to be able to dominate me.

The real story of CBDCs is that they are potent. They can cook our food or incinerate our house as fire would. This will determine how we will use this fire in future to have a future of money. With transparency, equality, and consideration of human rights, CBDCs will be a step forward if they are insisted on. However, disregarding these facts, CBDCs can be another shackle on our liberty.

Thus, it is still early days in the life of CBDCs. That is why us, as Nigerians, we cannot sit back and watch. It is time we talk, ask questions, and define the future of money that can only serve us and not the other way round. The future is digital and the future also lies with us.