Will eNaira become a cheaper, faster option for remittances?
The website for eNaira, Nigeria’s Central Bank Digital Currency (CBDC), went live on Monday, almost a week ahead of its anticipated launch on October 1.
The apex bank said on the new website that the eNaira, which provides a unique form of money denominated in naira, would help ease frictions Nigerians experience in remittance transactions.
“The eNaira provides a secure and cheaper diaspora remittance option and an increase in the speed of such transactions,” the CBN said.
Remittance remains one of the major sources of foreign exchange for Nigeria. A report from Agusto Consulting on diaspora remittance shows that Nigeria has over $21 billion annually in inflows, making it the second-largest recipient of remittance on the continent, only after Egypt. Diaspora remittance also represents the second-largest source of foreign exchange inflow into the country, second only to crude oil earnings.
In recent times, the country experienced revenue sources declining significantly. In 2019, the figures dipped by 2 percent to $23.8 billion, while in 2020, a double-digit drop of 27.7 percent was recorded as diaspora remittances fell to $17.2 billion driven by the COVID-19 pandemic on the incomes of Nigerians living abroad.
Worried by the decline, the CBN introduced a raft of policies to boost remittances. One of the policies allowed beneficiaries of diaspora remittance to be paid in foreign currency. The apex bank also announced the Naira4dollar scheme in the second quarter of 2021, which pays diaspora Nigerians N5 rebate for every $1 or remittance sent through licenced International Monetary Transfer Operators (IMTOs).
The country attracted 24 percent fewer diaspora remittances in the first quarter of 2021 than in the previous year. Data from the CBN’s balance of payment (BOP), foreign financial flows from Nigerian families abroad into the country fell to $4.2 billion in that period, from $5.6 billion in the first quarter of 2020.
Why is diaspora remittance dropping?
The 27.7 percent decline in 2020 was so significant that the World Bank said in its remittance report that it was the primary reason for the entire sub-Saharan Africa region. That decline accounted for over 40 percent of remittance flows to the region.
According to the global financial institutions, the decline was largely due to the cost of remittance.
“Sub-Saharan Africa remains the most expensive region to send money to where sending $200 costs an average of 8.2 percent in the fourth quarter of 2020,” the World Bank said.
Although the CBN says the eNaira provides a cheaper option for diaspora remittances, it does not say how this will become possible.