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The Central Bank of Nigeria (CBN) has explained its decision to halt the growth of digital currencies in the country, citing interference from the private sector and concerns about the opacity of cryptocurrencies.
Dr. Kinsley Obiora, the Deputy Governor for Economic Policy at the CBN, disclosed these reasons during the Business Session of the Fiscal Liquidity Assessment Committee (FLAC) retreat held in Abuja.
According to Obiora, members of the private sector created cryptocurrencies in response to their fear that the CBN’s decision to increase the money supply would result in hyperinflation.
The creators of cryptocurrencies also believed that central banks should not have unrestricted control over money.
Recognizing the potential inflationary impact and the potential erosion of households’ purchasing power, the CBN responded to the positive aspects of this change as many people embraced cryptocurrencies.
Due to dissatisfaction with the behavior of cryptocurrency operators, the CBN took the step of excluding them from the banking system due to concerns about the system’s opacity, which posed a threat to financial stability.
Obiora further explained that when the central bank began responding to the COVID-19 crisis by increasing the money supply, some private-sector individuals believed that this could lead to hyperinflation.
As a response, they created cryptocurrencies to assert that central banks should not have unfettered authority over money.
However, the central banks needed to acknowledge the positive aspect of this change, as cryptocurrencies gained popularity among the public.
Another consequence of the government’s response to COVID-19, as revealed by Obiora, was a rise in the fiscal deficit from 4.7 percent in 2019 to 6.2 percent in 2022.
The CBN Deputy Governor highlighted that the monetary side responded by implementing various policies to address the crisis. However, this led to an increase in the fiscal deficit from 4.7 percent in 2019 to 6.2 percent by 2022.
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