Cryptocurrencies may continue to flourish even in the wake of greater adoption of formal digital currencies by central banks.Evidence from countries that have successfully rolled out digital versions of their fiat currencies, shows that the Central Bank Digital Currencies (CBDCs) are not effectively discouraging the use of crypto assets.

Nigeria, the only African country that has launched a CBDC, is yet to report success from the e-Naira, nearly two years after launch. But cryptocurrency adoption continues to grow by the day there.

Nigeria, the only African country that has launched a CBDC, is yet to report success from the e-Naira, nearly two years after launch. But cryptocurrency adoption continues to grow by the day there.A May 2023 report by the the International Monetary Fund (IMF) revealed that the e-Naira wallet has so far been downloaded by just over 800,000 people – 0.8 percent of active bank accounts in Nigeria – and more than 98 percent of these accounts have never been used even once.

At the same time, American crypto research firm Chainalysis ranks Nigeria sixth globally in crypto use, with over 22 million people, or 10.3 percent of the population, owning a cryptocurrency as of November 2022.

This means that while CBDCs may never fully substitute cryptocurrencies as many central banks may hope in the push to limit risk to countries’ monetary sovereignty.Chainalysis, in a report argues that while CBDCs and cryptocurrencies have a common aspiration “to make finance more widely accessible or less costly,” they aren’t substitutes for one another.“In practice, CBDCs are tailored to specific priorities of each country, such as to promote financial inclusion, foster competition in payment systems,” Chainalysis said.“Just as many currencies and payment rails co-exist today, so may crypto and CBDCs in the future,” the firm added, noting that the purpose of cryptocurrencies today extends beyond streamlining of finance.

Kenyan economist Aaron Thegeya argues that if effectively designed, CBDCs can indeed be more beneficial to citizens than cryptocurrencies as they’ll lower transfer costs, ease payments and build financial inclusion, with much lower levels of volatility compared with cryptocurrencies.

Dr Thegeya says that although CBDCs do not serve the sole purpose of replacing crypto, their proper design should leverage on the benefits of both cash and the digital assets “within a framework of lower volatility” to ensure their success.In an earlier report authored by Dr Thegeya and Kenyan blockchain expert Prof Bitange Ndemo, the experts argued the success of CBDCs will largely depend on proper regulation and implementation policies.The Central Bank of Kenya in June deprioritised issuance of a digital currency in the short to medium term, saying the “allure of CBDCs” is fading on a global stage as several countries struggle with their implementation.

Uganda, Tanzania, and Rwanda, however, continue to research CBDCs, but it is unclear whether they will go ahead with the development after Kenya abandoned the plans.Besides CBDCs, the United Nations Conference on Trade and Development (UNCTAD) last year said countries should consider regulating cryptocurrencies to mitigate the risks they pose to financial systems.