Africa’s first digital currency flops

Africa’s first Central Bank Digital Currency (CBDC), the eNaira, has struggled to gain traction since its launch in October 2021.

Intended to reduce reliance on cash and improve financial inclusion, the digital currency only constitutes 0.36 percent of the country’s currency in circulation.

According to data from the Central Bank of Nigeria (CBN)’s quarterly statistical bulletin for the first quarter of 2024, only N13.98 billion of the N3.87 trillion currency in circulation is in eNaira tokens. Despite this slow uptake, available eNaira has grown by 1,895.51 percent from N700.75 million in October 2021.

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A CBDC is a digital form of a country’s fiat currency backed by the central bank.

“The consensus is that cash is king due to its ease of use in low-trust environments,” Moniepoint said in its ‘Informal Economy Report’ released this month.

At its launch, the eNaira was projected to boost economic growth and improve the country’s gross domestic product (GDP) by $ 29 billion over 10 years.

The eNaira’s fluttering coincides with the country’s strong adoption of cryptocurrency. Nigeria has one of the largest peer-to-peer (P2P) crypto markets globally. According to Chainalysis, a global blockchain platform, crypto transactions in the country reached $56.7 billion between July 2022 and June 2023.

However, in what seems like a boycott of the digital currency, the International Monetary Fund (IMF), in its ‘Nigeria Staff Report for the 2024 Article IV Consultation,’ revealed that the adoption of the eNaira has been slow. Only 13 million eNaira wallets have been created, with most remaining inactive.

“Since the eNaira’s launch, the volume of executed transactions has reached 854,512 transactions, mostly from consumers to merchants, with a total value of N29.3 billion,” the Washington-based lender said.

In May 2023, the IMF disclosed that 98.5 percent of eNaira wallets were inactive and that the average weekly transaction value was N923 million.

“I have not met anyone that has used the eNaira to pay for anything,” a Nigerian businessman, Bolu Adesanya, said.

The apathy for using the eNaira is particularly pronounced among merchants. “Majority of the transfers are done using bank apps, not eNaira. There are also channels like PoS, which the customers prefer. So, the eNaira does not come into the discussion,” said a Lagos-based trader said.

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When the country witnessed a severe cash shortage in 2023, Nigeria’s digital currency adoption did not grow, with individuals preferring bank transfers. “The current cash crunch in Nigeria should have been an opportunity for the e-Naira to flourish. Why isn’t the CBN pushing this aggressively?” Amaka Anku, head, Africa at Eurasia Group, tweeted in February 2023.

Ndubuisi Ekekwe, lead faculty of Tekedia Institute and chairman of Tekedia Capital, on X, said, “With digital wallets, virtual accounts, USSD, and other options out there, the real contribution of eNaira to the advancement of Nigeria’s economy remains muted, from my perspective. It does not yield more money than old Naira, and it does not help you make more money than the traditional Naira money.”

In May 2023, Victor Asemota, growth partner at AnD Ventures, asked, “What is it for? Nobody has ever explained any use cases different from existing stores of value. What is the advantage of eNaira over others? If the answer is not forthcoming, then you now know why nobody is using it.”

In June 2021, Nigeria announced it would kick off a CBDC pilot program. According to the announcement, it has been researching digital currency for two years. The eNaira went live four months later, becoming the first in Africa. According to the Atlantic Council CBDC tracker, Nigeria is one of three countries that have fully launched a CBDC.

As of May 2024, three countries (Nigeria, The Bahamas, and Jamaica) had launched CBDCs; 36 were in the pilot phase, 30 were in development, 44 were in research, 17 were inactive, and two (Ecuador and Senegal) had cancelled plans.

“The eNaira has faced challenges with adoption for several reasons. One is that there is no successful pilot project of CBDC in the world yet. Nigeria became the second country in the world to innovate on CBDC and build its own CBDC,” noted Obinna Iwuno, president of the Stakeholders in Blockchain Technology Association of Nigeria (SIBAN).

He highlighted that having a national blockchain strategy would have helped the adoption of the eNaira. He added, “The banks which are supposed to be the ones through which this e-naira should be accessed are not even leading in the adoption, affecting its integration into our financial system.”

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The International Monetary Fund (IMF) noted recently that Nigerian authorities aim to broaden the use of the eNaira, with the CBN recently acquiring the technological infrastructure to manage it. It further stated that the CBN is currently piloting a program that enables people without a bank account to use eNaira via their smartphones in a bid to boost adoption.

The IMF stated, “Finally, an important challenge is how to make eNaira accessible to all the population while ensuring adequate financial integrity safeguards to prevent its use for financial crimes. eNaira is currently only accessible to those people with bank accounts.”

The CBN has renewed its attempts to save the eNaira. In March 2024, it was announced that the apex bank signed a Memorandum of Understanding (MoU) with a blockchain firm to accelerate its adoption. Despite this, the fate of the eNaira hangs in the balance with the CBN working on a CBDC called cNGN. Unlike the eNaira, which the CBN manages, the cNGN token will be created and managed by tier-one banks.