Central Bank Digital Currencies, Stablecoins and Monetary Sovereignty: A Theoretical Analysis of Currency Competition and Financial Stability in Emerging Economies (IIAR Journal of Economics Finance and Development Studies)

Summary

• The Central Bank of Nigeria launched the retail eNaira CBDC in October 2021 following a February 2021 directive restricting cryptocurrency transactions in commercial banking.p.2
• In December 2023, Nigerian regulators permitted commercial banks to serve licensed virtual-asset businesses using designated accounts.p.2
• A survey of 417 respondents in Nigeria analyzed how trust, emotional value, and financial perceptions influence cryptocurrency adoption.p.4
• Empirical studies covering peer-to-peer trading in more than 160 countries show crypto channels are used for remittances and evading capital controls.p.4
• Nigeria adopted an official inflation-targeting regime in January 2024 to address high inflation persistence observed since 2016.p.5

Key insights

1. Foreign dollar stablecoins enable residents in high-inflation markets to acquire cross-border dollar claims at low transaction costs.p.2
2. Dollar stablecoins function as private claims on foreign sovereign money rather than sovereign domestic assets.p.3
3. An appropriately remunerated CBDC can force banks with deposit power to raise deposit rates, expanding both deposits and credit.p.3
4. Peer-to-peer bitcoin trading data across 160 countries indicates crypto usage increases under strict national capital controls.p.4
5. Widespread stablecoin adoption weakens domestic monetary policy transmission because foreign digital balances do not respond to domestic interest rates.p.7
6. Retail CBDCs compete with stablecoins on payment convenience and credit risk, but cannot offset real-return losses caused by high domestic inflation.p.7
7. Offline functionality represents a crucial CBDC design feature that expands digital reach without causing bank disintermediation.p.8
8. Prohibitive regulatory stances lower stablecoin market share by less than expected by pushing transactions into opaque peer-to-peer channels.p.8