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“CBDC is a Centralized Network, it has no resemblance with Cryptocurrency” – Adedeji Owonibi, Founder, Convexity

“CBDC is a Centralized Network, it has no resemblance with Cryptocurrency” – Adedeji Owonibi, Founder, Convexity

Our COO Adedeji Owonibi in an interview section with Tech Build Africa had this to say about Central Banks CBDC replacing paper note.

Can the Federal Government be trusted on this?

Permit me to paraphrase the question, more likely to be can the Naira be trusted? Yes, the Central Bank Digital Currency is clearly going to be trusted, because it’s still the same thing, just you know, the apex bank is exercising the power they do have with the CBN act to be the sole printer and minter of money used within that jurisdiction that is known as the legally tendered currency in that country in this case Nigeria

So, if we trust Naira, because, with Naira, we pay our school fees, we use Naira for religious offering and all sort of things we do today.

Exactly the replica of that will happen. Now, the question probably would have come up from the issue of decentralization, which is the main central promise of blockchain and they say if you don’t trust people, you can use blockchain to enforce transparency, but they are not saying we want you to trust us for more transparent money and all that, they’re just saying that the Naira we used to have we want to digitize.

So nothing really changes, it is central, it has no resemblance with cryptocurrencies because it works on a decentralized network, but this one is going to be a centralized network that is owned, controlled and printed by the Central Bank. So it’s still the same thing with the Naira we use today.

It is a threat to all governments in the world. We did a publication on our website some days ago, where we asked “Can the CBN legally issue a Central Bank Digital Currency?”

We clearly said ‘No’, they don’t have legal backing to actually do it even if they want to. And why did we say that?

We’re resting on IMF’s report that says over 80% of Central Banks around the world cannot even issue CBDC For these two reasons:

One is that the Central Bank Enabling Act like in the case of the Central Bank of Nigeria act does not in any way recognize anything like a digital or cryptocurrency.

The CBN only knows about the issuance of coins and paper, so for them to be able to do anything different from what is embedded in the act, they have to go back from the act of the National Assembly to redo that.

So has that been done? The answer is no. So the second reason is actually based on the technical capacity of Central Banks around the world as the IMF also found that 80% of these Central Banks do not have the capability on their own to begin rolling out CBDC.

The timing on the Central Bank is a bit dicey. Well, let’s keep our fingers crossed, probably there are some inner capabilities we are not aware of, and they want to quickly rush it by December, and that to me is not a feasible date.

China for instance is still doing a test run since 2013, So if China with all its technological capabilities has not recorded success yet.

I don’t see why the Central Bank of Nigeria is rolling it all out in December, except they’re probably not going to be building from the bottom-up and they are just going to be plugging into some already made solutions.

So if this is implemented by the intended date how do you see it influencing the Nigerian economy?

Yes, for me, it’s going to make trade more fluid, make a transaction faster, is going to enable easy trades within ourselves, including the foreign people that want to use it because it can easily be transferable.

I think the other aspect will be censorship, whether the government will be tracking everything you buy is another aspect that a lot of people have been asking me as a Compliance Specialist and somebody that is into blockchain and regulations and all those are investigative part of it.

All to make sure that the privacy of people is ensured, even when the Central Bank rolls out the currency.

China just did this and they did not promise their citizens any privacy, they know they are going to see their citizen’s transactions and everything that they do with their money. So for Nigeria, we don’t know because we are not a totalitarian community, we are a democracy.

So we are not too sure of how the Central Bank will ensure that privacy for individuals are guaranteed which is a right for anyone, except there is a reason to unmap, whoever is doing it to see if there’s any legality.

So those are grey areas that we’re still going to see how it’s going to work was by and large is going to be accepted in my view.

El-Salvador recently adopted Bitcoin as its legal tender, could Nigeria have taken the same path?

You know, it takes very innovative leaders. Leaders with high foresight having an understanding of the technology and its trajectory for them to do that.

Most countries, we beg to disagree, but I think a lot of countries will follow suit. We see discussions happening in I think in Jamaica, Belarus and some other countries are trying to take the same path in making it their national currency because of stability.

IMF has however warned about the volatility of making that currency a national currency, and IMF is in discussion with Belarus on this.

So far, Nigeria, I don’t see Nigeria in that path, because we need leaders with an understanding of this technology, a situation where the CBN Governor refers to those who trade in cryptocurrency as criminals.

Can the government guarantee privacy?

The only part that we are concerned about is the interplay of privacy and censorship around this proposed digital currency.

At which point, do you ensure that compliance is happening? At which point do you stop just trailing and monitoring your citizen to see what they spend their money on?

So that privacy point and the break in reconciling these two gaps, you know, ensuring there’s compliance and ensuring the privacy of people is a dicey grey area that we want to get clarification on and for the Central Bank to give confidence to that money, remember that this CBDC is not coming in isolation as it is coming into an economy where you have over 8000 cryptocurrencies playing and people are transacting with their choice cryptocurrencies.

So for me as a Nigerian to say I’m going to transact with Naira, there must be some incentive to citizens to use it.

And so we don’t know what incentive the central bank wants to bring. Maybe they want to give some discount where you use the Naira as a digital currency. We are just waiting to see more details about the rolling out of this CBDC, which we’re still looking to get insight into.

Why CBDC’s issuance by CBN may be illegal in Nigeria like other 133 countries

Why CBDC’s issuance by CBN may be illegal in Nigeria like other 133 countries

Many observers argue that the imminent arrival of central bank digital currency (CBDC) could herald the biggest shake-up to the world’s monetary system for nearly a century.

But, say the authors of a new working paper from the International Monetary Fund (IMF), CBDCs may not even get off the starting blocks in many countries for a fundamental reason: they are illegal.

According to Wouter Bossu, Masaru Itatani, Catalina Margulis, Arthur Rossi, Hans Weenink and Akihiro Yoshinaga, the authors of the IMF paper, close to 80 percent of the world’s central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework governing CBDC issuance is unclear

CBDCs may not even get off the starting blocks in many countries for a fundamental reason: they are illegal

“We reviewed the central bank laws of 174 IMF members and found out that only about 40 are legally allowed to issue digital currencies,” the IMF said in a blog published to accompany the release of the paper.

In 61 percent of the countries it surveyed, the IMF said, the local law only permitted central banks to issue money in the form of physical cash (banknotes and coins).

For example, in the eurozone, said the IMF, the legal framework specifies that electronic money can only be issued by private institutions, and not by the central bank. This restriction is embedded in the EU’s 2009 directive on electronic money institutions, it said.

In a further 16 percent of countries, the law regarding the issuance of CBDC was unclear, said the IMF, while only in 23 percent of countries does the legal framework give an apparent green light to this new form of money.

IMF chart

“Any money issuance is a form of debt for the central bank, so it must have a solid basis to avoid legal, financial and reputational risks for the institutions,” the IMF said.

“Ultimately, it is about ensuring that a significant and potentially contentious innovation is in line with a central bank’s mandate. Otherwise, the door is opened to potential political and legal challenges.”

A further challenge for CBDC is to achieve ‘legal tender’ status, said the IMF authors.

Legal tender—meaning that creditors cannot refuse that form of money in payment of a debt—is a prerequisite for CBDC to obtain the status of currency, the IMF said.

“Legal tender status is usually only given to means of payment that can be easily received and used by the majority of the population,” the IMF said.

“That is why banknotes and coins are the most common form of currency.”

Here, there are formidable infrastructure requirements to overcome for CBDCs to achieve equivalent status to traditional currency, said the IMF.

“To use digital currencies, digital infrastructure—laptops, smartphones, connectivity—must first be in place. But governments cannot impose on their citizens to have it, so granting legal tender status to a central bank digital instrument might be challenging,” it said.

“The digital space might become ‘populated’ by private alternatives”

However, governments and central banks are caught in a bind when it comes to the introduction of CBDC, the IMF suggested: if they launch it without proper legal foundations they incur significant risks, but if they delay launching it, other unregulated private sector alternatives might fill the gap.

“In the absence of a clear response, the monetary system will struggle to adopt CBDC widely and the digital space might become ‘populated’ by private alternatives,” the authors of the IMF paper said.

Some say that private sector ‘cryptodollars’ may already be performing the role of digital substitutes for state money.

CBDCs raise a host of other thorny legal questions, the IMF went on in its new paper.

“The creation of CBDCs will also raise legal issues in many other areas, including tax, property, contracts, and insolvency laws, payments systems, privacy and data protection and, most fundamentally, preventing money laundering and terrorism financing,” the IMF said.

“If they are to be ‘the next milestone in the evolution of money’, CBDCs need robust legal foundations that ensure smooth integration to the financial system, credibility and broad acceptance by countries’ citizens and economic agents,” it said.


Living in the new age of Private Money

Living in the new age of Private Money

The most famous Austrian economist is 1974 Nobel laureate Friedrich Hayek. Because of his moderate views excusing state interventions in various circumstances, hardcore Rothbardians tend to regard Hayek as less than pure in many areas.

However, one area where Hayek is certainly more radical (though perhaps not correct!) than even Murray Rothbard is monetary institutions, as detailed in his fascinating (1978) pamphlet The Denationalisation of Money.

When it comes to the free market’s handling of money, the typical Austrian argument is over fractional reserve banking (FRB). Some think FRB is perfectly legitimate (so long as the banks do not receive special privileges from the government), while others consider it inherently fraudulent. But both groups agree that fiat money is a horrible creation of the state and that the free market would always settle on a commodity (such as gold) as the underlying base money.

Inasmuch as many of the participants in the FRB debate are far more radical than Hayek on most policy issues, it is quite surprising then that Hayek’s proposal calls for privately issued, competing fiat currencies. That is, Hayek proposes that individual firms issue pieces of paper that are not backed by any production or consumption good. In a sense, Hayek wants to privatize central banking.

As the reader can imagine, this proposal strikes almost everyone—even modern Austrians—as absurd; we will deal with some of the major objections below. But partly because of this near-unanimous rejection, and partly because the analysis in any case is instructive, I will attempt in this article to give Hayek’s case the best possible defense.

Hayek’s Proposal

Hayek argues that, if only government obstacles were removed, the free market would provide the optimal quantity (and variety!) of monetary products. Just as the forces of competition lead to low prices and superior quality in every other line, so too would competition in the “fiat money industry” lead to monies that were infinitely better than their government-produced counterparts. For example, the private monies would be far more stable in their purchasing power, would be harder to counterfeit, and would be available in more convenient denominations.

Although one can imagine an equilibrium situation given that the public is already holding vast quantities of such private currencies, it is difficult to conceive of how they would “get off the ground” in the first place. Here is the most ingenious part of Hayek’s proposal (which naturally I am adapting for a modern exposition):

A private firm could initially print up, say, 1 million pieces of paper (that of course would be difficult for an outsider to reproduce) with a cute picture of Friedrich on them. The firm then contractually pledges to redeem each “Hayek,” at any time, for either $10 or 80 Chinese yuan. Assuming that the firm has substantial assets and that everyone is fully confident of their redeemability, the Hayeks at auction will sell for somewhat more than $10. This is because they will always be worth at least $10, but they might (in the not too distant future) be worth more, if and when the Chinese government lets the yuan appreciate against the dollar. (In that case, investors could redeem each Hayek for ¥80, which would exchange for more than $10.) For the sake of argument, let’s suppose that the firm initially auctions all 1 million Hayeks for $12 each.

Thus far the proposal involves nothing too radical; each Hayek is really just a derivative asset. How, then, would the issuing firm get the public to start treating the Hayeks as money? On the night of the initial auction, after the market price of the Hayeks had been ascertained, the issuing firm would specify a commodity basket (consisting of bread, eggs, milk, and other goods relevant to consumers) that cost, say, $60 at Wal-Mart. Then the firm would announce to the public the following nonbinding pledge: “We will use our firm’s assets to adjust the outstanding supply of Hayeks such that 5 Hayeks will always (insofar as it is humanly possible) have the purchasing power to buy this specified commodity basket.”

Now, as time went on, the US dollar and the Chinese yuan would depreciate vis-à-vis real goods and services. In particular, the dollar price of the specified commodity basket would increase. So long as the Hayeks were still being valued solely because of their tie to dollars and yuan, their value as well would begin to drop; the Hayek price of the commodity basket would start to rise from 5 to 5.05, etc.

At this point the issuing firm would need to prop up the value of its fiat currency. It would need to enter the market and buy back Hayeks from those marginal holders who were most anxious to sell. In this way, the issuing firm could (at least temporarily) maintain the purchasing power of the Hayeks such that 5 Hayeks could still buy the relevant commodity basket at Wal-Mart, even though the dollar price of that basket has risen above $60 (as the US government continued to print new dollars).

Here is where the theory ends and we are stuck with an empirical question: Would the firm eventually buy back all 1 million of the Hayeks? Or, at some point before this happened, would the record of stability of the Hayek (in terms of its purchasing power vis-à-vis the specified commodity basket) allow for a self-fulfilling prophecy in which people begin holding Hayeks not because of the underlying legal redeemability, but because of its expected purchasing power in the future?


Hayek’s proposal was understandably treated with suspicion. Murray Rothbard1 argued that it violated Mises’s “regression theorem,” which demonstrated that all money—even government fiat currency—must ultimately derive its purchasing power from a historical tie to a commodity that was valued in a state of barter. However, this objection overlooks the fact that Hayek’s proposal does contain an initial link to an underlying asset in order to get off the ground.

Rothbard also objects that not all government functions should be privatized, in particular tax collection, torture of prisoners, and the issuance of fiat currency. The point may be conceded, but Hayek’s proposal would certainly be legally permissible in a libertarian society. Even those who consider fractional reserve banking as fraudulent could find no violation of property rights in Hayek’s proposal;2 they would simply have to argue (and a compelling argument it is!) that any firm attempting to circulate its own fiat currency would go bankrupt.

A different problem is that, in the world Hayek envisions, there would be no single money, and hence the benefits of a common medium of exchange would be curtailed. To this I would respond that it is possible that even under a 100 percent commodity standard, some groups use gold, others use silver, and others use cows as a medium of exchange.

Yes, there would be forces tending to promote the emergence of a single money throughout the entire world, but this would not be instantaneous, as conditions differ greatly from region to region. So long as each of the local monies could be freely exchanged against one another, modern currency markets (aided by computers) would significantly reduce the transactions costs involved. By the same token, we cannot say that the benefits of a single money outweigh all other considerations and that therefore Hayek’s system must be rejected.

Another objection (raised by Selgin and White) is that a private “central bank” would, just as its government counterpart, always find it most profitable to hyperinflate. It is true that this would cause the public to abandon the currency, but so what? If 5 Hayeks currently exchange for so many eggs, milk, etc., why not print up 2 billion of them and buy as many real goods as possible? Surely this one-shot move will earn more than the present discounted value of responsible management of the supply of Hayeks.

This fear overlooks the fact that the Hayeks (in our example) are always legally redeemable for $10 or ¥80. That places a floor below which their value cannot sink (without draining the reserves of the issuing firm).

Pete Canning acknowledges this fact and refines the objection by pointing out that, eventually, the government currencies will have depreciated so much that this check will soon be impotent. Ironically, here is where another of the alleged deficiencies—namely the multiplicity of currencies—comes to the rescue. Precisely because each issuing firm will only provide the money held by a fraction of the public, one firm’s decision to hyperinflate would not be nearly as disastrous as when a monopoly government does so.

Moreover, if a major firm ever did decide to hyperinflate, the public would demand measures to prevent a recurrence. For example, in addition to pledging to redeem Hayeks at any time for $10 or ¥80, our hypothetical firm might also legally pledge “We will never increase the supply of Hayeks by more than 100 percent per year.”3


Let me close by pointing out some of the overlooked benefits of Hayek’s scheme. First, in principle privately issued fiat currencies could prove more stable than even commodity metals in terms of their purchasing power. The whole job of the firm issuing Hayeks (in our example) is to closely monitor the financial markets to fine tune the exchange value of the Hayeks, such that five of them always purchase the specified commodity basket at a major grocery store. This is not true when it comes to gold; the exchange rate between gold and the commodity basket would be far more volatile (though of course much more stable than the exchange rate between government currencies and the basket).

Another benefit is that the firms could change the composition of the commodity basket to reflect the preferences of the holders of their monies. For example, some people may not care about the price of eggs and bread, and would prefer a money that had stable purchasing power in terms of a basket of aluminum, platinum, etc. A firm could fill that niche.

Another interesting feature of Hayek’s system is that holders of money would themselves reap the advantages of inflation of the currency, rather than the issuing firm. Consider: if the public ever did accept Hayeks (and Lachmanns etc.) as media of exchange, over time the market would increase the production of eggs, butter, etc., and hence there would be a tendency for their Hayek price to fall. Therefore, in order to maintain the stated purchasing power, the issuing firm would need to print up and distribute additional Hayeks periodically.

Now if the firm were a monopoly, naturally its owners would spend the new Hayeks themselves. But because of competition, the firm can only keep the public using Hayeks if, in addition to the incredibly stable purchasing power, holders of Hayeks receive new units in proportion to their holdings. That is, the firm would have to periodically increase the supply of Hayeks at large in order to maintain a constant purchasing power, but it would need to give the new units to its customers. (An easy way to achieve this would be for the firm to also act as banker and pay dividends on deposits.)

Finally—and I admit this is quite fanciful—suppose that in the distant future, humans develop the Star Trek capacity to reproduce (within limits) any type of physical item. In that case, no commodity could serve as a useful medium of exchange, because people would simply mass produce it at virtually no cost. In such a world, money would probably become mere numbers on computers.

Yes, if governments were expected to responsibly run such a system, all would be lost. But it is at least worth exploring whether a system based on Hayek’s ideas could provide sound media of exchange in that futuristic environment.

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