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Fintech CEO: With Nigerian foray into CBDC, all eyes still on inflation

This week, Rakiya Mohammed, IT Director for the Central Bank of Nigeria, announced during a webinar that the nation should launch its central bank digital currency by the end of the year, a project which has been under consideration since 2017. Across the region, both Ghana and South Africa have been working on CBDCs, and the Central Bank of Nigeria particularly noted that the country “could not be left behind…”

“In many ways, this is indeed a race. I’ve often called the battle to build a functional CBDC this generation’s Race to Space,” Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges. “Perhaps more than any other country, Nigeria cannot afford to fall behind other regional players.”

“While regulators talk about the digital currency as a tool to increase growth and lessen the burden of cross-border transfers, not to mention the upside to providing better financial access to the unbanked population, the reality is that Nigeria is plagued with an inflation rate that is roughly 18%. I don’t think that it would be overstating the issue to call inflation both a public health risk, as well as a national security risk, for the country,” Gardner said.

“We’ve seen Nigeria take a hard line on cryptocurrencies, and it isn’t any wonder why. Hard working Nigerians are desperately in search of a way to store value. They want their savings to afford them the same buying power next month as it does today. They’ve turned, en masse, to cryptocurrencies in order to protect themselves from sky-high inflation. That investment in cryptocurrencies, however, has only further weakened the position of the Naira. They’re in a tough position, for sure,” opined Gardner.

Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Over the past twenty years, the company has built technology for the world’s most notable exchanges, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.

“There are lots of good reasons for countries to invest in building up their technology infrastructure and beta testing their own CBDC, but it can definitely be argued that few countries need to employ their CBDC more quickly than Nigeria. With a CBDC, they’re hoping that their populace will move away from cryptocurrencies, in favor of their own digital currency, but I don’t know that we’ll see that play out. The reality is that the country will still be dealing with crippling inflation. A potentially worst-case scenario for Nigerian monetary policy, however, would be that neighboring Ghana quickly releases a CBDC which is secure and well trusted. If that happens, it is conceivable that they’re no longer just competing against Bitcoin, but also against neighboring central banks with a better handle on inflationary measures,” said Gardner.