Digital currency: Despite teething issues, CBN blazes the trail with eNaira

When the Central Bank of Nigeria (CBN) officially launched its digital currency known as the e-naira on October 25, 2021, there was scorn in the financial sphere on how it would succeed due to the perforation of cryptocurrency in the country. Being the second Central Bank Digital Currency (CBDC) fully open to the public after […]

When the Central Bank of Nigeria (CBN) officially launched its digital currency known as the e-naira on October 25, 2021, there was scorn in the financial sphere on how it would succeed due to the perforation of cryptocurrency in the country.

Being the second Central Bank Digital Currency (CBDC) fully open to the public after the Bahamas Sand Dollar, the digital currency is gaining traction with the projection of its download to 10,000 in the second quarter of 2022 from the 7,300 recorded in the first quarter of the year.

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Consumer wallet downloads have so far been the most downloaded over the merchant wallet, but transactions between Person-to-Bank and Bank-to-Person have constituted about 90% on the platform.

But experts view this setback as a result of a lack of awareness by businesses as well as restrictions regarding Bank Verification Numbers, BVN, and other Know Your Customer, KYC, requirements.

CBN’s Governor, Godwin Emefiele, had in January stated that launching the eNaira was intended for banked Nigerians and that the BVN was mandatory to prevent fraudsters from hacking into the system.

Emefiele said “We feel that you must have a BVN and you must have an account to be able to access it and we also find that this has created some kind of constraints on people about onboarding with BVN and the rest of them. But again, we believe that what we do by the use of the BVN is the best so as to avoid fraudsters from hacking into the system.”

“Most of the complaints received were mainly around the inability of prospective users to onboard and activate the E-wallet due to a mismatch of BVN enrollment records.”

Emefiele further stated: “Since its launch about three months ago, Nigerians have continued to gradually adopt eNaira as a fast and reliable means of exchange.”

This is evident with its download from North America to Australia, and all over Africa, demonstrating attraction from not just Nigeria but other parts of the world with over 700,000 downloads.

According to the International Monetary Fund (IMF), the launch of e-Naira by the Central Bank of Nigeria is drawing substantial interest from the outside world including from central banks.

It stated that around 100 countries are exploring CBDCs at one level or another, some researching, some testing, and a few already distributing CBDCs to the public, following the launch by CBN.

For instance, the IMF said Sweden’s Riksbank has developed a proof of concept and is exploring the technology and policy implications while in China, the digital renminbi is gaining acceptability with more than a hundred million individual users and billions of yuan in transactions.

The IMF Executive Board in 2021 Article IV opined that full acceptance of eNaira could deepen and foster financial inclusion and improve the delivery of social assistance but close monitoring of associated risks should be placed on premium.

On the benefits of CBDCs, PwC France and Maghreb Financial Services Risk and Blockchain Partner, Benoit Sureau noted that its wholesale would streamline security token post-trade operations through atomic delivery-versus-payment and increase the market efficiency for several asset classes.

“We expect CBDC research, testing and implementation will intensify in 2022. The success of Nigeria’s eNaira is likely to spur CBDC development in countries where financial inclusion is one of the key desired outcomes.”

Similarly, West Africa Financial Services Leader and Chief Economist, PwC Nigeria, Andrew Nevin said: “CBDCs will transform the payment system, as low value-added transactions become possible in a costless and secure way for everyone.”

“The success could also catalyse more complex and transformative CBDC uses, including Blockchain Identity Management, Land Registry, and Supply Chain Verification. As each of the use cases develops, we can bring more people into the economic and financial system and lift tens of millions out of poverty.”

Also, the Global Financial Services Leader, PwC United States, John Garvey stated that it is especially important for financial institutions to understand where central banks are with digital currencies because ultimately CBDCs will start flowing through the payment system and start to hit bank balance sheets.

“Careful consultation with central banks is critical in clarifying the business case for CBDCs, from inclusivity, financial performance and interoperability perspective. One thing that is clear, lowering the cost of payments in an economy provides value throughout the economy and for citizens. If CBDCs can ultimately enable more efficient payments, that will benefit everyone,” Garvey said.

Analysts believe that with the CBDN, the history of money is entering a new chapter with broader technological and social shifts.

CBN governor, Emefiele, speaks on eNaira

Emefiele had said the eNaira would support a resilient payment ecosystem, encourage rapid financial inclusion, reduce the cost of processing cash, enable direct and transparent welfare intervention to citizens and increase revenue and tax collection.

He said eNaira would also facilitate diaspora remittances, reduce the cost of financial transactions, and improve the efficiency of payments.

“Therefore, the eNaira is Nigeria’s CBDC and it is the digital equivalent of the physical naira. 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 one naira to one eNaira.”

Emefiele said in a bid to further de-risk the process, CBN had given careful consideration to the entire payment and financial architecture and designed the eNaira to complement and strengthen these ecosystems. He said the bank had also implemented safeguards and policies to maintain the integrity of the financial system.

He said since the eNaira platform went live, there had been overwhelming interest and encouraging response from Nigerians and others across the world, with over 2.5 million daily visits to the website.

More benefits of the e-Naira

Key benefits of e-Naira include growth: e-Naira fosters economic growth by offering easier access to capital and financial services thereby increasing economic activities at low/no interest transaction rate.

Remittance: The eNaira provides a secure and cheaper diaspora remittance option and an increase in the speed of such transactions.

Monitoring: The eNaira’s traceability limits its use for illicit or fraudulent purposes. Welfare: eNaira enables the effective, equitable, and faster distribution of cash assistance to households and communities included in the government Social Welfare Programme.

Inclusion: The eNaira provides Financial Inclusion by making financial services available to people or communities who do not have (enough) banking opportunities.

Trade: eNaira increases Local and International Trade by making transactions cheap, safe, quick, and better.

Security: eNaira has a stronger security because it cannot be forged or counterfeited as a result of its unique identity and security structure. Revenue: eNaira aids Revenue collection by reducing cash handling costs.

Moreso, CBN’s Director of Corporate Communications, Mr Osita Nwanisobi, also reiterated, “The e-Naira is expected to deepen financial inclusion by bringing more people into the financial space, support a resilient payment ecosystem, reduce the cost of processing cash, enable direct and transparent welfare intervention to citizens, increase transparency in revenue and tax collections, facilitate diaspora remittances, reduce the cost of financial transactions and improve the efficiency of payments.”

Noting that there have been encouraging responses to the e-Naira, Osita, added, “Customers who download the eNaira Speed Wallet App will be able to onboard and create their wallet; fund their eNaira wallet from their bank account; transfer eNaira from their wallet to another wallet and make payment for purchases at registered merchant locations.

“I, therefore, appeal to Nigerians to embrace the eNaira just like our physical Naira – our pride,” he said.