CBDCs vs. Cryptocurrencies: Clash of the digital currency titans

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  • Bitcoin was the first cryptocurrency adopted by an African nation as legal tender; Africa’s first CBDC was Nigeria’s eNaira.
  • Even though the CAR government has expressed its commitment to adopting Bitcoin, there’s a possibility that the project might eventually be abandoned.
  • People have praised the eNaira for its potential to improve financial inclusion and reduce the cost of cross-border payments.

The clash between Central Bank Digital Currencies (CBDCs) and cryptocurrencies becomes increasingly evident as the world moves toward a more digitalized and interconnected financial ecosystem. These digital currency titans represent two distinct approaches to reimagining money, each with advantages and challenges catering to different needs and purposes. We look at Bitcoin, the first cryptocurrency adopted by an African country, the Central African Republic, and Africa’s first CBDC, Nigeria’s eNaira.

CBDCs explained

A CBDC represents a digital rendition of a country’s official currency that its central bank issues and oversees. In contrast to decentralized cryptocurrencies, the central bank or authorized financial institutions control and operate CBDCs centrally. The main objectives of CBDCs are to improve financial transactions’ efficiency, security, and inclusivity. They offer faster and more cost-effective payment methods, promoting financial inclusion for the unbanked and underserved populations. Various countries and central banks are exploring and implementing CBDCs, signifying a substantial evolution in the modern economic landscape.

Central banks create and oversee CBDCs, which are digital representations of a country’s official currency. Their primary focus is enhancing stability and control within the existing financial system. By leveraging the trust and authority of major banks, CBDCs aim to provide a reliable and secure form of digital money that mirrors the value of the traditional fiat currency. Stability is paramount for CBDCs. Ensuring they can effectively serve as a medium of exchange and store value without the extreme price fluctuations often associated with cryptocurrencies.

Furthermore, CBDCs are designed to foster financial inclusion. CBDCs seek to empower unbanked and underserved populations by providing access to digital payment systems. This grants the aforementioned opportunities to participate in the formal financial system. This democratization of finance can help bridge economic disparities and foster greater economic participation for individuals who previously lacked access to traditional banking services.

What is cryptocurrency

A cryptocurrency is a decentralized digital or virtual currency that uses cryptography for security. It operates independently of any central authority and relies on blockchain technology to record and verify transactions. Cryptocurrencies offer features like anonymity, borderless transactions, and limited supply. They serve various purposes, including as a medium of exchange and a store of value. However, their adoption and regulation pose challenges, and their role in the financial landscape is still evolving.

On the other side of the spectrum, cryptocurrencies embrace decentralization, which sets them apart from CBDCs. Operating on blockchain technology, cryptocurrencies like Bitcoin and Ethereum work without central authorities or intermediaries. This decentralized nature grants users more financial autonomy and control over their assets, as they do not rely on a central bank or government to validate and approve transactions.

Privacy and anonymity are another focal point for cryptocurrencies. While CBDCs often require transaction monitoring and regulatory compliance, cryptocurrencies offer pseudonymity, as they do not directly link users’ wallet addresses to their real identities. This feature allows for borderless transactions and financial privacy, which has attracted both legitimate users and those involved in illicit activities.

A Common ground between CBDCs and cryptocurrencies

Despite their differences, CBDCs and cryptocurrencies share a common objective: to leverage technology to advance the financial landscape. CBDCs utilize the advancements in digital payment systems and blockchain technology to provide efficient, safe, and transparent transactions within a regulated framework. Cryptocurrencies, meanwhile, serve as a testament to the potential of decentralized financial systems. Challenging the status quo and fostering innovation in the digital asset space.

As these digital titans continue to gain traction and capture the attention of governments, financial institutions, and the general public, their coexistence raises pertinent questions. Can they find common ground to complement each other’s strengths? Will the regulatory landscape adapt to accommodate CBDCs and cryptocurrencies, ensuring consumer protection and financial stability without stifling innovation?

The landscape in Africa

CAR and Bitcoin

The Central African Republic (CAR) adopted Bitcoin as a legal tender in April 2022, becoming the second country in the world after El Salvador. Some met the move with skepticism, raising questions about the country’s capability to implement and regulate Bitcoin and the potential for the cryptocurrency to facilitate illicit activities.

The CAR government’s reasons for adopting Bitcoin included boosting the country’s economy, attracting foreign investment, and providing a more stable currency for its citizens. The government also argued that Bitcoin would help to reduce corruption and improve financial inclusion.

However, challenges have arisen in adopting Bitcoin. The CAR needs to enhance its infrastructure to accommodate cryptocurrency use better. And the general population requires more education about Bitcoin. Furthermore, accusations have surfaced that the government is using Bitcoin to launder money and bolster its military support.

In July 2022, the CAR government announced that it was freezing the application of its law adopting Bitcoin as a legal tender. The government said it needed more time to develop regulations for cryptocurrency use.

The future of Bitcoin in the CAR is still under determination. Even though the government has expressed its commitment to adopting Bitcoin, there’s a possibility that the project might be abandoned in the end. Only time will tell whether bitcoin can help the CAR achieve its economic goals.

Nigeria and eNaira

The Central Bank of Nigeria issues the eNaira, which is a central bank digital currency (CBDC). It serves as the digital equivalent of the Naira and functions similarly to physical cash. The eNaira wallet functions as a digital storage solution for holding the eNaira. Accessing, storing, and utilizing the eNaira necessitates the use of the eNaira wallet. On October 1, 2021, the eNaira was launched, marking the debut of Africa’s first issued CBDC.

The Central Bank of Nigeria has said that the eNaira will help to improve financial inclusion, reduce the cost of cross-border payments, and combat financial crime. The eNaira enables payments for goods and services, money transfers between individuals, and the payment of government taxes and fees. Additionally, it can receive remittances from abroad.

The eNaira is available in two forms: a physical eNaira card and a digital eNaira wallet. The physical eNaira card can be used to make payments at point-of-sale terminals. The digital eNaira wallet can make payments online or through mobile apps.

The eNaira is a secure and traceable currency. All transactions are recorded on a distributed ledger, making counterfeit or double-spending eNaira difficult. The Central Bank of Nigeria also can track eNaira transactions, which can help to combat financial crime.

The eNaira has been met with mixed reactions. Some people have praised the eNaira for its potential to improve financial inclusion and reduce the cost of cross-border payments. Concerns have been voiced regarding the security of the eNaira and its potential utilization for illicit activities.

Determining the success of the eNaira remains premature. However, the Central Bank of Nigeria is committed to the project. The eNaira could potentially have a positive impact on the Nigerian economy.

The battle rages on.

The clash between CBDCs and cryptocurrencies is more than a mere battle for supremacy. It represents a critical inflection point in the evolution of money and finance. Striking the right balance between stability and decentralization, regulation, and privacy, will be essential to shape a financial future that embraces technological advancements while addressing the diverse needs of individuals and economies worldwide. As these digital titans continue to shape the economic landscape, their coexistence, collaboration, or divergence will define the trajectory of modern finance in the years to come.


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Kudzai G Changunda
Kudzai G Changundahttp://www.about.me/kgchangunda
Finance guy with a considerable interest in the adoption of web 3.0 technologies in the financial landscape. Both technology and regulation focused but, of course, people first.