History was made in Nigeria on Monday, October 25, 2021 when the Central Bank of Nigeria (CBN) launched the central bank digital currency (CBDC) otherwise known as the eNaira. The official ceremony which was performed by the President, Muhammadu Buhari, made Nigeria the first country in Africa to do so.
The digital currency was launched in the form of eNaira speed wallet and eNaira merchant wallet on Google playstore and Apple store, for easy download to Nigerians. Over 100,000 downloads have thus far been recorded within 24 hours after it was launched.
According to the Atlantic Council, a digital currency is virtual money backed and issued by a central bank of a country, and it is these features that distinguish them from crypto currencies, which are other virtual currencies.
As of today, 81 countries, whose combined Gross Domestic Product (GDP) amount to 90 percent of the global GDP, have shown varying interests in digital currency. Out of these, six countries, of which Nigeria is the newest member, have launched their digital currencies. Other countries are the Marshall Islands, China, Sweden, the Bahamas, and the Eastern Caribbean Currency Union.
16 other countries are in the pilot stage of implementing digital currency. These countries include Canada, Haiti, Brazil, France, Switzerland, Pakistan, Japan, South Africa, Mauritius, among others.
In addition, there are 14 countries in the development stage; 14 others are conducting feasibility research, while eight are inactive just as two countries, Ecuador and Senegal, have cancelled their digital currencies.
Read Also: CBN updates eNaira wallet app amidst user complaints
One of the benefits the digital currency offers its promoters like CBN is the declining role of cash payments for transactions. According to McKinsey, the percentage of cash used in total transactions in China fell from 99 percent in 2010 to 41 percent in 2020. In Sweden, it fell from 56 percent to 9 percent during the same period.
Digital currencies also help in the promotion of cross border trade and, consequently, enhances cross border uses of a currency. This is good for countries that have a strong manufacturing base and an export-oriented policy.
Nigeria’s digital currency will benefit the Central Bank of Nigeria as it will further enhance its policy of inclusion. The CBN incurs huge amount of expenses on currency management. Should this policy becomes successful, it will reduce the cost usually incurred on the printing of currency of different denominations.
But some concerns remain. We understand that the CBN has given assurances on the security of the platform, but with the way hackers are upgrading their skills, it remains to be seen how the eNaira platform would not be hit by cyber-attacks.
In June 2016, the central banks of Indonesia and South Korea were hit by cyber-attacks. In 2019, European Central Bank’s website was compromised while Denmark’s central bank was attacked in 2020. Forbes reported that financial institutions are hundred times to be attacked more than other industries.
Nigerians are worried of the likelihood of fraud being perpetrated in their eNaira accounts. According to the Q3 2020 report by the Nigeria Inter-Bank Settlement System (NIBSS), the major source of fraud is mobile payment platform.
The NIBSS stated that fraud attempts made via the mobile platform rose from 20 percent in Q3 2019 to 36 percent in Q3 2020. It stated further that the fraud attempts would grow further as Nigerians become more dependent on electronic channels for their day-to-day transactions.
There is another issue of complaint resolution. Sometimes, it takes days to resolve failed transactions executed through the ATMs, mobile phones and internet. These are issues that the banks themselves have complete control over because each bank controls its financial infrastructure.
Digital currencies also help in the promotion of cross border trade and, consequently, enhances cross border uses of a currency
Like most Nigerians, we are also worried that, with the eNaira infrastructure under the control of the CBN whose offices are not everywhere like those of deposit money banks, accessibility of the eNaira merchants may be a big issue when the need for complaint resolutions arises.
Another major concern is that, unlike the regular deposits with the deposit money banks and microfinance banks which are insured with the Nigerian Deposit Insurance Corporation (NDIC), nothing has been so far about insurance for eNaira wallets.
We advise that these concerns be addressed and quickly too so as to raise the level of confidence and trust Nigerians will have in the eNaira project.
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