India and Nigeria ramp up plans to launch central bank digital currencies

India’s and Nigeria’s central banks have drawn up plans towards launching their own sovereign-backed digital currencies.

Central bank digital currencies (CBDCs) are the digital form of fiat money, giving holders a direct claim on the central bank and allowing them to make instant electronic payments.

CBDCs differ from digital money like cryptocurrencies, which are private and decentralised tokens.

On Thursday, Rakiya Mohammed, the Central Bank of Nigeria's (CBN) director of information technology, said that a CBDC pilot will begin as early as October 1.

At a press briefing in June, Mohammed said the bank had been researching a possible CBDC for years and would be trialing a digital naira before the end of this year.

Nigerian financial officials have been grappling with how to best deal with the rise of cryptocurrencies in the country, and had prohibited crypto transactions in the banking sector in February.

The CBN’s deputy governor Adamu Lamtek clarified that crypto trading was not banned, and its popularity has continued to grow despite the banking restrictions.

A digital rupee on the cards?

Also in a speech on Thursday, Deputy Governor T. Rabi Sankar said the Reserve Bank of India (RBI) is considering running a series of pilot programs for a proposed CBDC.

Sankar said “perhaps the time for CBDCs is nigh” and the RBI was weighing a “phased introduction” of a digital rupee to allow time for required legal changes to the country’s foreign-exchange rules.

He added that it would reduce currency costs for the government and protect citizens from the volatility of cryptocurrencies.

The RBI published a report back in March that highlighted the benefits of a CBDC for financial inclusion and drawbacks related to raising the cost of lending through commercial banks.

While the Indian government has previously indicated its intent to ban cryptocurrencies, the mood has shifted in recent months with signs of the country taking a more lenient approach by regulating the crypto market.

So far, at least 80 percent of central banks around the world are exploring use cases for CBDCs, with 40 percent already testing pilot programs.

China’s digital yuan trials are currently at the most advanced stage of any CBDC project to date.

The US announced a series of private sector-led pilot programmes in May to generate data to help policymakers develop a digital dollar.