The Central Bank of Nigeria (CBN) officially launched its digital currency known as the e-naira on October 25, 2022, being the second Central Bank Digital Currency (CBDC) fully open to the public after the Bahamas.
E-Naira is a central bank digital currency issued by Nigeria’s Central Bank as a legal tender. It is the digital form of the Naira and will be used just like cash.
In less than four weeks of its launch almost 600,000 downloads of the e-naira application were recorded, Godwin Emefiele, governor of the Central Bank of Nigeria, said in November 2021.
Subsequently, around 100 countries are exploring CBDCs at one level or another, some researching, some testing, and a few already distributing CBDC to the public, according to the International Monetary Fund (IMF).
In the Bahamas, the IMF said the Sand Dollar—the local CBDC—has been in circulation for more than a year.
Sweden’s Riksbank has developed a proof of concept and is exploring the technology and policy implications of CBDC.
In China, the digital renminbi [called e-CNY,] continues to progress with more than a hundred million individual users and billions of yuan in transactions.
And, just last month, the Federal Reserve issued a report that noted that “a CBDC could fundamentally change the structure of the U.S. financial system”.
“As you might expect, the IMF is deeply involved in this issue, including through providing technical assistance to many members. An important role for the Fund is to promote exchange of experience and support the interoperability of CBDCs,” said Kristalina Georgieva, IMF Managing Director, Atlantic Council, Washington, DC.
According to the CBN, the eNaira is envisaged to bring multiple benefits, which are expected to materialize gradually as the eNaira becomes more widespread and is supported by a robust regulatory system.
“Nigeria has taken a bold move by being the first in Africa to launch the CBDC. It is still a very tentative concept, which has not been well proven everywhere. However, it is a necessary idea because of the onslaught of cryptocurrencies, which is decentralised banking, which is targeting the collapse of the central banking and the financial system,” said Tope Fasua, CEO, Global Analytics.
He said Nigeria has only moved ahead to wait for the day that CBDCs will be the currency. The naira has always been digital, it is only becoming more digital by the creation of e-naira. One thing different is that the e-naira is domiciled in the CBN. It is a CBN currency, he said.
According to him, one of the advantages should be that if every major currency goes digital, that means that the naira should be more convertible to other currencies and that can help the value of naira in the near future. If the CBN did not evolve a digital currency but wait for cryptocurrencies to come and take out the currency that is when we will be in trouble. You can see that cryptocurrencies have slowed down a bit because central banks around the world are talking of digital currency and Nigeria was particularly vulnerable.
“Nigeria was the second highest country where they traded cryptocurrencies as at 2020, of which if you look at our GDP and every other index that should alarm everyone that means that either there is a huge informal, illegal economy that tries to disguise the volume they do through the use of cryptocurrency. It is important for us to de-emphasise cryptocurrency at that level and for the Central bank to show innovation.
He said what the CBN and other Central Banks that have digital currencies should do is to look at how their currencies can within limit be very convertible. That means how people can pay from e-naira to dollar or pay in cryptocurrency or pay in Yuan without having to go and fill forms in banks.
“The banks should be very interested in knowing who is doing what, setting limits and so on. I think we should look at more of the benefits of e-naira in the future. It is a very interesting though complicated concept but it is something that we must continue to look at”, he said.
There are several benefits from a central bank-issued digital currency in Nigeria, and this cuts across different sectors of, and concerns of the economy.
Key benefits of e-naira include growth: eNaira fosters economic growth by offering easier access to capital and financial services thereby increasing economic activities at low/no interest transaction rate.
Remittance: eNaira provides a secure and cheaper diaspora Remittance option and an increase in the speed of such transactions.
Monitoring: eNaira’s traceability limits its use for illicit or fraudulent purposes. Welfare: eNaira enables effective, equitable, and faster distribution of cash assistance to households and communities included in the government Social Welfare Program.
Inclusion: eNaira provides Financial Inclusion by making financial services available to people or communities who do not have (enough) banking opportunity.
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.
Responding to a question on how a customer can identify shops and outlets that accept e-naira, the CBN said while efforts will be made to put signages and decals at designated merchant locations, customers can simply ask the merchants if they accept eNaira.
Emefiele had stressed that the support of the financial industry would be critical in the ongoing deployment of the e-naira and efforts are ongoing to encourage continued partnership between the CBN and stakeholders in the financial industry.
The IMF Executive Board in 2021 Article IV agreed that while the newly launched eNaira could help foster financial inclusion and improve the delivery of social assistance, close monitoring of associated risks will be important.
The history of money is entering a new chapter, according to Georgieva, who said countries are seeking to preserve key aspects of their traditional monetary and financial systems, while experimenting with new digital forms of money.
The IMF said in November 2021 that the launch of e-Naira by the Central Bank of Nigeria is drawing substantial interest from the outside world including from central banks.
In the latest report titled, ‘Five Observations on Nigeria’s Central Bank Digital Currency’, by Jack Ree, IMF African Department, the Fund explained that like coins or cash, the eNaira is a liability of the CBN.
The eNaira uses the same blockchain technology as Bitcoin or Ethereum and, like them, the eNaira is stored in digital wallets and can be used for payment transactions; and it can be transferred digitally and at virtually no cost to anyone in the world with an eNaira wallet. There are, however, important differences. First, the eNaira features stringent access right controls by the central bank.
Second, unlike these crypto-assets, the eNaira is not a financial asset in itself but a digital form of a national currency and draws its value from the physical naira, to which it is pegged at parity.
“Central banks are committed to minimizing the impact of CBDCs on financial intermediation and credit provision. This is very important for the wheels of the economy to run smoothly. The countries we studied offer CBDCs that are not interest-bearing—which makes a CBDC useful, but not as attractive as a vehicle for savings as traditional bank deposits,” the IMF said.