A lot of hype attended the introduction of Nigeria’s new digital currency – e-Naira, which is a digital representation of the paper Naira and coexists with it as an additional form of money. In this report Ibrahim Apekhade Yusuf examines the different issues that has heralded what is generally described as a giant leap in the nation’s financial ecosystem
Following the official launch of the eNaira last Monday by President Muhammadu Buhari, Nigeria scored a major feat as the first country to unveil a digital currency on the continent.
An elated Buhari during the launch said that the development, seen by many as a giant leap in the country’s digital economy, would increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.
“I am delighted,” he concluded, “to officially launch the Central Bank of Nigeria digital currency called the eNaira. And in so doing we have become the first country in Africa and one of the first in the world to introduce a digital currency to our citizens,” Buhari said.
Echoing similar sentiments, in a statement released on 23 October, the director of communications of the Central Bank of Nigeria (CBN), Osita Nwasinobi, said that the eNaira “marks a major step forward in the evolution of money and the CBN is committed to ensuring that the eNaira, like the physical Naira, is accessible by everyone… The theme of the eNaira is: ‘Same Naira, more possibilities.”
The eNaira will be an electronic version of the local paper naira currency, equal in value and issued by the Central Bank of Nigeria. It is not intended to replace cash but will function as a safe and efficient alternative means of payment.
Banks upbeat about eNaira
Ahead of the launch last Monday, many of the money deposit banks had already set machinery in motion to fully integrate the digital currency into its system.
Lending credence to the foregoing, the CBN governor, Godwin Emefiele, said, “33 banks are fully integrated and are live on the platform. 500 million has been successfully minted by the Bank, N200 million has been issued to financial institutions, over 2,000 customers have been onboarded and over 120 merchants have successfully registered on the eNaira platform.”
“As the tagline simply encapsulates, the eNaira is the same naira with far more possibilities. The eNaira, like the physical naira, is a legal tender in Nigeria and a liability of the CBN. The eNaira and naira will have the same value and will always be exchanged at 1 naira to 1 eNaira,” he said.
The ‘why’ of eNaira
It is however instructive top note that boosting inclusion is one of the principal aims of the digital currency. It aims to integrate millions of unbanked Nigerians into the banking sector. Some 55% of adult Nigerians were unbanked in 2020 – around 58m people. Of these, 35m own mobile phones and could be reached with mobile money.
Besides, the eNaira is aimed at boosting transparency by allowing the regulator to better monitor currency transactions and curb black market trading in the paper naira. The new currency is built on blockchain’s open ledger technology, which reduces the risk of fraud by ensuring each eNaira note is unique and can’t be duplicated or counterfeited.
The eNaira is also aimed at boosting in-bound remittances by providing a cheaper, more secure and faster way for Nigerians in the diaspora to send back money. Remittances to Nigeria amounted to over $17.2bn in 2020, according to the World Bank.
“However the costs and logistics associated with these transactions can also be prohibitive for people living in remote parts of the country. The eNaira will enable direct remittance payments between Nigerians within and outside of the country,” said their representative.
The eNaira is also intended to reduce so-called “leakages” from state budgets due to in-built traceability that uses blockchain technology. It is furthermore hoped that the new currency will offer an alternative to the cryptocurrency black market. At the same time, because this infrastructure will give the authorities much greater direct oversight of transactions, privacy issues could emerge.
A further benefit for the government is that the digital currency is expected to reduce the high cost of printing the physical currency, which amounted to N307bn (747m) between 2014 and 2019, according to a report from the CBN.
The pilot launch will take place in Port Harcourt, Abuja, Kano and Lagos, and in the first phase digital currency will only be available to those who already have bank accounts. However, the eNaria is intended to be universal, meaning that it will eventually be possible to use it around the world to send and receive money or pay for goods and services.
To use eNaira, it will be necessary to create an eNaira wallet, which is digital storage managed by blockchain technology. During the rollout, there will be just one version of the wallet, the government’s Speed Wallet, although financial institutions will be able to develop their own versions later.
Once the eNaira wallet has been created users will be able to transfer money to it from bank accounts or credit cards and to send and receive payments to others in the digital currency.
Advantage to consumers
The eNaira will be legal tender and users will be able to make peer-to-peer payments to anyone who has an eNaira wallet without having to use an intermediary. Customers will be able to use their eNaira wallets to purchase goods in store by scanning QR codes.
Nigerians will be able to make payments for all manner of goods and services this way. As the CBN has stated that there will be no charges for peer-to-peer transactions and payments to merchants, consumers will make significant savings on what they would have paid if making payments through a mobile money service.
Unbanked Nigerians will be able to make transactions of up to N50,000 a day without the need for a bank account, while those with bank accounts will be able to send or receive money using a bank account or credit card linked to their eNaira wallet. It will be possible for customers to monitor their wallet, balances, and transaction history.
However, money held in an eNaira wallet will not be paid any interest.
Users will be able to transfer money out of their digital wallets back to their ordinary bank account, but it will not be possible to withdraw physical naira from an ATM from the wallet.
On a monitored television magazine programme in Lagos, Johnson Chukwu of Cowry Asset Management Limited, said “One of the main differences between the eNaira and existing e-wallets is that it will not allow transactions to hang.”
“Once you’ve made the transaction, it’s done immediately,” he said. The biggest problem for individuals with the digital currency would be if they lost their access code. “Then you’re going to find it hard to retrieve your money,” he said.
The CBN’s eNaira website gives an example of how the digital currency should work for international transactions. Abuja-based roofing sheets supplier Olugbenga Fakoredele Arenola describes how much easier he expects it to be to make payments to his Ghanaian supplier for an urgent shipment of materials.
How eNaira will affect banks and fintechs
Nigeria’s financial institutions will be close partners of the government in developing the new system, but aspects of it could impact strongly on their revenue models.
Although financial institutions will be able to develop their own eNaira wallets, the initial roll-out will use the CBN’s Speed Wallet (see above). This, along with the fact the CBN will own “the infrastructure, platform, customer, and data”, could “turn the regulator into a competitor and provide the CBN a first-mover advantage over the banks,” warns Tochukwu Egesi, writing on the Inclusion Times website.
The Director, Centre for Economic Policy Analysis and Research, Prof. Ndubisi Nwokoma, said that the currency which is novel would be faced with distrust even as implementation progresses.
A Professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, said the eNaira is a worthy innovation by the CBN, hoping that the banks would keep the charges low so as not to frustrate the project.
“It is an extension or addition to normal fund transfer except that it can be used easily for cross border transactions. It also requires an app that may not be available for those phones used by poor people.
To access the eNaira, users have to download the ‘speed wallet’, which allows users to conduct transactions with speed and ease. It is the digital storage that holds the eNaira and is held and managed on a distributed ledger.
According to economic pundits, the apex bank may have literally set itself on a very ambitious target of “minting, issuing, distributing, and redeeming the eNaira” and question whether it and the country’s financial institutions will be capable of carrying out all the ensuing responsibilities.
Citing an IMF blog that says: “Offering full-fledged CBDC requires central banks to be active along several steps of the payments value chain… Failure to satisfy any of these functions, due to technological glitches, cyber-attacks, or simply human error, could undermine the central bank’s reputation,” Sola Fawole said it is anybody’s guess how the CBN would navigate the many hiccups that could come with the eNaira but feels strongly that if successful, the launch could have great positive repercussions for Nigeria’s banking system and the economy as a whole.
The eNaira could reshape the country’s financial landscape and push legacy banks to expand and adapt the services they offer, comments the CBN’s partner, Bitt Inc.
“Bitt believes that central bank digital currencies (CBDCs) represent a first step toward realising a quantum leap in infrastructure transformation that enables global financial networks to interact in a faster, more modern, and secure way,” says the firm.
