The federal government of Nigeria is set to create a legal framework for stablecoins and ICO -Initial coin offerings. The importance of having a legal framework for stablecoins is highlighted in a new strategy paper released by the Central Bank of Nigeria.
In the report headlined “Nigeria Payments System Vision 2025”, the Central Bank of Nigeria (CBN) seeks to develop a regulatory framework for the possible incorporation of a stablecoin. The report highlights the need to provide a framework considering that stablecoins are a possible successful payment scheme in the country.
Nigeria, regarded globally as one of those frontiers pushing for integrating its own central bank digital currency (CBDC), has indicated its preparedness to acknowledge the existence and use of private stablecoins with this latest move.
Also, the report accentuates the need for regulation for initial coin offerings (ICOs). It pays attention to the present unavailability of regulation in that sector, causing losses for investors. Nonetheless, the CBN believes and sees a probable adoption of ICOs as a new scheme for crowdsourcing for significant projects and peer-to-peer lending.
The bank added that It would also continue its watching brief on Initial Coin Offerings and work with Security Exchange Commission to develop a regulatory framework in the event of an ICO-based investment solution adoption.”
Though the report touched the stablecoins and ICOs areas, much emphasis was laid on the Nigerian CBDC, eNaira. The Central Bank considers it a possible “facilitator of change and transformation” in the national economy that has suffered from incessant drawbacks.
It hopes to complete and finalize the integration of the currency within the next five years.
In December 2022, Nigeria reduced the withdrawal limit of individuals and businesses to 100000 and 500000 per week, respectively, to push its “cash-less Nigeria” policy and increase the use of the eNaira but has since increased the limit following an outcry from Nigerians.
Adoption rates for the e-naira have been low since its launch in 2021. As reported by Cointelegraph, the CBN has struggled to convince its citizens to use the digital currency, with less than 0.5% of the population reported having used the eNaira as of Oct. 25, 2022, a year from its launch.
In a report from The PUNCH, several economists condemned the central bank’s intention to develop a regulatory framework for adopting stablecoin for economic improvement. They said it is premature and obdurate looking at the failure e-naira has become after its incorporation into the economy.
Last year, TechNext explained how stablecoin could immensely help Nigerians hedge against the failing economy: stablecoins are cryptocurrencies that try to ensure price stability and are tied to a reserve of assets. It may be pegged to a currency like the U.S. dollar or to the price of a commodity such as gold.
They are more useful than more-volatile cryptocurrencies as a medium of exchange. There are many stablecoins, including $USDT, $BUSD, $USDC, and $TUSD. These coins are linked to the value of an underlying asset.
Tether (USDT) is the largest and most widely used stablecoin. The price of Tether is linked to the exchange rate of the US dollar. USD Coin (USDC) is another major stablecoin issued by the American cryptocurrency exchange Coinbase in partnership with Circle. USD Coin is also pegged to the price of the dollar.
How a regulatory framework for stablecoins may benefit Nigerians
The presence of regulation for stablecoins is likely to encourage more Nigerians to buy digital assets. As it stands, purchasing stablecoins hedged against currencies stronger than the Naira could be an advantage.
TechNext explains: Using stablecoins brings some great benefits for Nigerians, especially in this precarious time. Since there is no hope regarding Naira’s rise against the US dollar, a reasonable strategy is to start saving in stablecoins like USDT, which is projected to stay strong, rather than keeping money in Naira, which keeps losing value.
The interesting thing is that people don’t have to break the bank. You don’t necessarily need to have millions to save in USDT. You can purchase these stablecoins for as low as N5000 or less on peer-to-peer platforms.
Additionally, stablecoins do not look at national borders. It is just as easy to send a stablecoin transaction to someone abroad as it is domestically. The system is also very transparent because blockchain technology is used. Every transaction is stored on the blockchain and can be viewed by anyone.
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