Let’s scrutinize eNaira with magnifying glass

If a bank chief executive who died in the 1990s wakes up and walks into a banking hall today, he would furiously disagree with today’s bank chief executive that what goes on in our banks is banking as he used to know it. First, tally numbers have disappeared; customers no longer have need to take […]

If a bank chief executive who died in the 1990s wakes up and walks into a banking hall today, he would furiously disagree with today’s bank chief executive that what goes on in our banks is banking as he used to know it. First, tally numbers have disappeared; customers no longer have need to take their mat to the bank to relax as they wait on long queues to withdraw cash; intimidating sacks of Naira notes are no longer being bandied around by rich traders; huge notebooks of personal account ledgers have given way to computerized transactions; and bank passbooks are no longer necessary for transactions. Credit for these comfortable changes goes partly to Central Bank of Nigeria (CBN) Governor Godwin Emefiele who has superintended over innovations and changes in the sector, especially the consolidation of the cashless and  internet banking system. Nigerians have come to terms with online transfer payment, mobile banking, automated teller  machine, electronic fund transfer, point of  sale, and electronic cheque,  semantic data warehouse and other after sales  services.

However, the digital Naira, eNaira, arrived on the country’s monetary space at the speed of Chengdu J-10, one of the fastest aircraft in the world. As at June 2021, newspapers reported about the digital currency with uncertainty, using the modal verb ‘might’ to demonstrate how tentative government was about it. But about six months after it was speculated, President Muhammadu Buhari launched the eNaira in October 2021 with so much excitement that has yet to trickle down to the Nigerian public. What is eNaira? The CBN has listed about seven significance of this digital currency to include reduction in the cost of printing the Naira note and producing coins; increased financial inclusion of citizens, since it would be easy to create an account and use; and it shall  lead to increased transparency in financial transactions, as the CBN would monitor transactions. But what has continued to stick to the minds of Nigerians is that eNaira is a reaction to the people’s growing appetite for cryptocurrency. I will return to this issue in subsequent paragraphs, as I examine five aspects of eNaira that give me concern:

Speed at which eNaira arrived

Though it is not stated, government followed the footsteps of China in adding eNaira to our currency options. However, China began a pilot use of its digital currency in April 2020, in three major cities – Shanghai, Chengdu and Beijing – not in the whole of China. But the journey to the pilot launch was not at the speed of six months. China started the journey in 2014, six years before its own digital currency was introduced in 2020. As at 2021, it is not clear if the Chinese electronic currency has been introduced nation-wide. As a corollary, the European Union Central Bank has not introduced eEuro, but it is using five years to conduct research, investigate safety measures, subject it to a long debate by EU members, before eventually introducing this currency. All over Europe, it is clear that digital Euro is inevitable, but EU central bank is still brainstorming and tying loose ends to ensure it is not prone to avoidable errors. It is not clear if our CBN engaged in such thorough investigation before eNaira came on board.

The cryptocurrency challenge:

The central banks of many countries are jealous that cryptocurrencies are winning the hearts of their citizens. China, for instance, has hounded those who subscribed to cryptocurrencies underground, as it is now like a financial crime to transact business in Bitcoin and the like. The launch of the digital Yuan was to rise to the challenge posed by the growth of cyptocurrency. Nigeria is reportedly the second country in the world where cryptocurrency is patronized, so the CBN’s haste in introducing eNaira may be understood in this context.

The question that arises is: why are Nigerians in love with cryptocurrency? It is mainly to protect their money from the devastating devaluation of the Naira against the dollar. The slide of the Naira has been alarming, causing hyper-inflation, and watering down the savings in banks. Worse still, banks pay very ridiculous  interest on savings, while sundry deductions for bank transactions erode bank balances. As cryptocurrencies promise high value over time, they become the platform where those who understand how to trade in them hide their hard-earned money. And it is not only in cryptocurrencies that Nigerians seek shelter against the battered Naira. Millionaires now convert their Naira to dollars to protect their money from the devaluation of the Naira. 

Therefore, eNaira may not deter Nigerians from patronizing cryptocurrencies, unless the CBN vigorously defends the Naira from its journey to the Lebanese Pound, which has lost its value and thrown millions in Lebanon into the poverty cage. If the devaluation of the Naira is not halted, our currency would lose an essential characteristic of money – store of value – in the near future. It is not clear if eNaira is programmed to shore up the value of the currency.

Cyber-security of the financial sector

Introducing digital currency in an era in which kidnappers receive payments electronically and armed robbers, with POS machines, extort their victims is, to say the least, confusing. Cybercrime in the financial sector is thriving and growing, and this is evident in regular arrests and prosecution of hackers by the Economic and Financial Crimes Commission (EFCC). For instance, in 2018, commercial banks in Nigeria lost over N15 billion (US$39 million)  to cybercrime and  electronic fraud. On the average, it is estimated that customers lost about N1.9 billion to cyber fraud yearly, some of them perpetuated by insiders in the financial sector. The scale has not really diminished in spite of cyber-security training given to bank staff, improved security within the banking facilities, advice to customers to build intense firewalls and to implement strong authentication control on electronic transactions. In fact, cybercrime has so polluted the country that foreign investors suspect every business proposal from Nigeria. To boost its resilience, eNaira should be transacted on a highly resilient technological channels, separate from those vulnerable platforms used by commercial banks.  Commercial banks’ security measures have not adequately withstood the activities of cyber fraudsters.

Cash and eNaira

Without controversy, cash has intrinsic features that electronic transactions cannot match. First, it is physical in nature; it ensures privacy in payment transactions, and it could be used without any technical infrastructure intervening. It is expected that digital Naira should not be an impediment for Nigerians to use their money to do business, so if one of its objectives is to reduce the use of cash, it is very important to make transactions with eNaira as easy as the exchange of Naira notes. That involves offline transactions, which, as it stands today, do not seem to be an option in the use of eNaira. Internet penetration in Africa is still very low, and digital knowledge is not as deeply entrenched  in many communities where the majority of Nigerians live as one would find in developed societies. Therefore, for vulnerable groups in rural areas to be inclusive in the digital currency, the technology for it must not be secure but not too sophisticated.

Shed more light on eNaira, please!

The CBN has launched the eNaira, but many questions are still left unanswered: If a customer moves his cash from commercial bank into eNaira wallet at the CBN, will interest be paid on his deposit? How will eNaira facilitate the purchase of foreign exchange? How will eNaira be accessed outside Nigeria, and would it be accepted at the same value in developed societies?  Will it be convenient to use outside Nigeria? Will eNaira be used as a form of financial investment?  How will eNaira co-exist with cash? Can anyone who does not have an account in a commercial bank use eNaira? How simplified is its use? Some of these questions have been answered by the CBN, but they would need to be answered more loudly to ensure all Nigerians are carried along in the new digital step-up in our monetary strategy. Several literature about eNaira eulogize this development, but the CBN should not be complacent due to the current praise-singing. A lot of work needs to be done to build confidence in the people to embrace this digital Naira.