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Nigeria’s Digital Currency Rollout Highlights Security, Privacy Concerns

Trust is paramount to any payments mechanism, be it hard currency, stablecoin or a central bank digital currency (CBDC).

Ecosystems can take shape only when the value of the payment will remain as agreed upon and the data underlying them are kept safe and private.

In the continuing conversations surrounding the development and deployment of CBDCs, the latest countrywide launch in Nigeria has placed privacy concerns front and center.

The nation’s rollout of the eNaira currency is facing headwinds and mistrust, despite the hundreds of thousands of digital wallets downloaded in the two weeks since its debut.

Read more: Nigeria’s eNaira Adoption May Be Hindered by Gov’t Mistrust

Nigeria’s economy remains largely cash based. Ronak Gadhia, an analyst for emerging markets-focused investment bank EFG Hermes, said cost savings Nigeria’s CBDC foray promised might hold the key to making the eNaira disruptive, but he emphasized that with the CBDC, the government knows every transaction taking place, which could cause Nigerians to be skeptical about adopting the payment method.

See also: Nigeria to Debut Its eNaira Currency Today

Nigeria’s rollout highlights how concerns about privacy — specifically, how, when and where governments collect information about what citizens are doing as they transact with state-issued digital currencies — could hamper efforts to adopt digital currencies in the world’s largest economies.

In outlining a framework for CBDC issuance, the so-called G-7 economies (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.), emphasized that every entity in a CBDC ecosystem — be it private or public — should have “operational resilience, data security and cybersecurity strategies.” Users of any CBDC “should have a high degree of transparency” regarding the use of their personal data.

Read more: G-7 CBDC Principles Urge Issuers to Do ‘No Harm’

The guidance comes amid concern over China’s efforts to roll out its own digital yuan next year.

The People’s Bank of China has reported that it is championing the concept of “managed anonymity.” As such, it is advocates for “anonymity for small value” — and that information be “traceable for high value.” In other words, we note, governments can decide — and perhaps change — the level of transactions that merit more scrutiny as well as the types of data collected.

See more: China’s Pressure Ahead of CBDC Rollout Points to Privacy Issues

“Ahead of a wider rollout there’s no real evidence yet of how anonymity and privacy protections would fare in real-world situations,” we said of China last month, and the same holds true, well, everywhere else.

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