As the world is drifting towards digital finance, more governments all over the world are championing the transition from physical fiat to digital currency. For a country-wide use of a digital mode of exchange, central bank digital currencies (CBDCs) are the solution. The central banks of eleven countries have already rolled out their own digital currencies and more countries are jumping on the trend. Because the concept of CBDCs is still in the infant stage, several governments are launching pilot programs and research projects to determine the viability and sustainability of nation-scale digital money in their economies. Being the first digital currency, the Bahamian Sand Dollar is leading the way and defining the prospects of CBDCs.

A snapshot into Bahamas’ hot sand dollar

In October 2020, the Central Bank of The Bahamas launched the world’s first CBDC, Sand Dollar. It is the digital representation of the country’s Bahamian Dollar which is used all over the country as a legal tender. Alongside the physical cash, the Sand Dollar provides a robust and efficient payment system for the Bahamian people. It can be used for day-to-day transactions such as paying bills, buying and selling goods and services, and sending funds to families and friends.

Distributed Ledger Technology (DLT) is the permissioned blockchain powering the Sand Dollar. This innovative technology allows for secure and transparent transactions attributable to the Sand Dollar, thereby enhancing the overall strength of the digital currency as a country-wide payment platform. It is important to note that the Sand Dollar utilizes a digital wallet system for keeping and managing funds to ensure seamless transactions and ergonomics.

One significant feature of the Sand Dollar is its emphasis on financial inclusion. Thanks to the Sand Dollar, thousands of unbanked Bahamians previously without access to traditional banking are actively participating in the digital economy. By addressing the needs of the unbanked population, the country of Bahamas has unlocked new opportunities for economic growth while decreasing the reliance on physical fiat.

Exceptional usability and accessibility are what set Sand Dollar apart. Relying on Near Field Communication technology (NFC) for implementing offline peer-to-peer transactions, people in remote areas with limited internet connectivity have access to the CBDC. This functionality is particularly crucial to some remote island areas within the country, catering to the diverse needs and solving infrastructural challenges in those places. Countries with low internet penetration, especially those in sub-Saharan Africa, can benefit from this invaluable attribute.

The Sand Dollar was also launched with dedicated collaboration with authorized financial institutions, ensuring a smooth transition and bolstering confidence among the users. In addition, the Central Bank of The Bahamas has implemented very stringent regulations and policies to safeguard the currency against threats like data theft, cyber fraud, and malicious attacks. As the Bahamian Sand Dollar leads other countries by example, these are the features that other central banks can revise as they emerge on their journey of creating their own CBDCs.

Exploring eNaira, “Same Naira, More Possibilities”

Joining the global trend, the Central Bank of Nigeria (CBN) embarked on its journey of developing its own digital currency and rolled out the continent’s first CBDC in October of 2021. eNaira is the country’s digital version of the national currency and hopes to serve as a country-wide medium of financial exchange digitally. It enables Nigerians to make efficient transactions using digital devices. With the slogan, “Same Naira, More Possibilities”, eNaira became the first CBDC launched in Africa, and second in the world behind the Bahamian Sand Dollar.

eNaira uses blockchain technology to store money, which is backed by the central bank, in digital wallets. It is envisaged to serve three key purposes: increased financial inclusion, facilitation of remittances, and reduced informality. As a country with 38 million unbanked people, the eNaira is poised to bring diversity to the country’s financial system. Being the country with one of the largest remittance volumes in Africa, eNaira will also enable international money transfer at significantly lower costs. Imagine that the $24 billion remitted through international money transfer operators in 2019 were moved through eNaira, the lower costs incentive will hugely benefit the transactors. One of the problems faced by the Nigerian financial system is the large informal economy, contributing to over half of the country’s GDP. The adoption of the eNaira will help bring more transparency to the system and strengthen the country’s tax base.

What can eNaira learn from the Sand Dollar?

As Nigeria advances in their efforts of a country-wide implementation of eNaira, case studies into what’s currently working with the Sand Dollar can be useful. More work needs to be done on the guidelines involving user identification, data privacy, cybersecurity, and anti-money laundering. For this to be possible, there need to be partnerships between the public and private sectors to foster smoother adoption of the eNaira.

The Nigerian people need to be educated on the benefits and use case of the eNaira. Since much of the country’s population is unbanked and less tech-savvy, the adoption of a digital currency may experience friction. Furthermore, owing to the low internet access in Nigeria, the implementation of offline peer-to-peer transactions that can allow people to interact with eNaira without internet connectivity will be helpful.

What should we expect?

As the country is increasing its move towards strengthening the use of the eNaira, significant potentials lie ahead. By digitizing transactions, money laundering and corruption, which are already widespread in the country, will be significantly reduced. Furthermore, more people and businesses will be empowered because of the efficiency and inclusivity the CBDC bring into the Nigerian economy. The country will also be receptive to increased entrepreneurship and innovation because the eNaira will allow a low-cost platform for conducting business. This can drive job creation and economic growth.