The Central Bank of Nigeria’s (CBN) new regulations on stablecoins introduce stricter requirements for digital tokens backed by the naira and foreign currencies, setting different standards for their issuance, reserve management, redemption and use in the country.
The regulations, which establish a framework for the operations of non-security virtual assets in Nigeria, classify stablecoins into two categories: Class 1, covering naira-referenced stablecoins, and Class 2, covering foreign currency-referenced stablecoins, including those pegged to the US dollar.
The distinction is important because stablecoins, unlike conventional cryptocurrencies such as Bitcoin, are designed to maintain relatively stable values by being linked to an underlying asset, usually a fiat currency. This makes them attractive for digital payments, cross-border transfers, savings and international transactions.
However, the growing use of dollar-backed tokens raises questions about their implications for Nigeria’s monetary policy, foreign exchange management and the demand for the naira. The CBN’s new framework seeks to bring these activities within its regulatory oversight while allowing digital assets to operate within defined boundaries.
Under the rules, naira-backed stablecoins must maintain a one-to-one relationship with the naira and be fully backed by eligible naira-denominated reserve assets. This means issuers cannot create tokens based on anticipated future deposits or rely on market demand to maintain their value.
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The regulations require issuers to maintain reserves equivalent to at least the full value of stablecoins in circulation, alongside an additional two percent reserve buffer to absorb potential valuation losses and operational liabilities.
They must also maintain at least 40 percent of their reserve pool in cash or eligible high-quality liquid assets. In addition, Class 1 issuers are required to maintain a reserve deposit with the CBN of at least 20 percent of their total reserve pool.
The remaining reserves may be invested in approved instruments, including Nigerian Treasury Bills, Federal Government bonds with specified short maturities, naira deposits in licensed commercial banks and eligible money market funds, subject to the limits prescribed by the regulator.
For dollar-backed stablecoins, the requirements are different. Issuers must obtain a Foreign Currency Issuer Licence (Class 2) and operate through an entity incorporated in Nigeria. They must also obtain CBN approval for the individual stablecoin before commencing issuance.
Their reserves must be held in the currency referenced by the token and consist of eligible assets, including cash deposits with approved Nigerian or foreign banks, short-term sovereign securities and qualifying overnight repurchase agreements.
Unlike naira-backed stablecoins, the regulations do not impose a fixed requirement for Class 2 reserve assets to be held domestically. However, issuers must maintain operational liquidity that is legally and operationally accessible to meet Nigerian customers’ redemption requests, payment obligations and other liabilities, including during periods of financial stress.
The distinction also extends to how the two categories can be used. The CBN permits naira-referenced stablecoins for approved payments, settlement, treasury management and the holding of balances incidental to these activities.
Foreign currency-referenced stablecoins may be used for cross-border payments, remittances, international commerce, trade settlement and transactions through licensed service providers. Holders may also transfer and retain foreign currency value, subject to applicable regulatory requirements.
However, approval of a dollar-backed stablecoin does not mean it can be used freely to settle domestic obligations denominated in naira. The CBN specifically subjects such transactions and conversions against the naira to existing foreign exchange regulations and other applicable laws.
This means that while Nigerians may use approved dollar-backed tokens for permitted international transactions, the digital assets cannot become a channel for bypassing the country’s foreign exchange rules or settling domestic naira obligations outside authorised arrangements.
The regulations also strengthen consumer protection by establishing redemption rights for holders of both categories of stablecoins. Every holder has a legally enforceable right to redeem tokens at their face value in the reference currency.
Issuers must maintain sufficient reserves and operational systems to process valid redemption requests no later than the end of the business day following receipt. Standard redemption must not attract fees, although the CBN may approve charges for non-standard settlement where they reflect actual costs and are properly disclosed.
Another important restriction is the prohibition of interest, yields, dividends or other financial returns to holders simply for holding stablecoins. The CBN has also prohibited algorithmic stablecoins that depend primarily on adjustments in supply and demand rather than full reserve backing. Tokens that reference fiat currencies but are backed primarily by other virtual assets are equally prohibited.
For the Nigerian financial system, the framework represents an attempt to accommodate the growing digital asset market without allowing stablecoins to operate outside existing monetary, foreign exchange and financial stability safeguards.
Ultimately, the rules could improve confidence in regulated digital payment instruments through stronger reserve requirements, transparency and redemption rights. However, their impact on the adoption of naira-backed tokens, the use of dollar-linked stablecoins and Nigeria’s broader foreign exchange market will depend on how effectively the CBN implements and supervises the new framework.
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Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.
