• Thursday, February 22, 2024
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eNaira: Once upon an unloved CBDC

eNaira: Once upon an unloved CBDC

On Friday, it became clear the fate of the eNaira was sealed. The Central Bank Digital Currency (CBDC) which became the poster child for global institutions pushing the adoption of the national digital currencies, has no future under Olayemi Cardoso, the new governor of the Central Bank of Nigeria.

Cardoso is not entirely opposed to the idea of CBDC, he is just going a different direction to achieve his CBDC, according to people knowledgeable on the matter. This will mean a new budget and spending different from the billions the eNaira has already cost the country with little or nothing to show for it.

The CBN is working on a CBDC to be called cNGN. Unlike the eNaira which is entirely managed by the CBN, the cNGN token will be created and managed by tier 1 banks to benefit the token holders and economy.

The CBN has also approved a consortium for the execution of the cNGN project. Members include Access Bank, Sterling Bank, Providus, Korapay, First Bank, interstellar, Interswitch, Budpay and Convexity.

Sources who spoke to BusinessDay said the cNGN token will ride on an interoperable blockchain, meaning that other operators apart from the CBN will have access to it. The cNGN interoperability is such that it is able to connect with other public blockchains and be used to transfer to any part of the globe.

“The eNaira blockchain was interoperable but it was controlled by the CBN,” said a source who preferred anonymity to speak freely. “It stood no chance with the banks that frustrated it because it did not give them room to make a profit. Under the eNaira, every money I send as a user to another user will not be charged. If I transfer N50 to another eNaira wallet, it will be recorded as N50 in that wallet, with no transaction fee charged on it. But only when I convert it to my bank account as naira would the bank charge me. The banks felt it wasn’t fair that they would be used as a medium to push the adoption of eNaira and not make money from it.”

cNGN is taking a completely new direction from eNaira. Where the eNaira was backed by the highly unstable naira, the cNGN token would be backed by the more stable dollar.

“In effect, the $ becomes Nigeria’s legal tender via the crypto door,” said Kalu Aja, a personal finance expert. “It’s not bad; the CBN will get revenues, and inflation will vanish if you use the cNGN to pay for goods. Expect luxury flats in Lagos and Abuja to start quoting in cNGN, not $.”

The eNaira was launched in October 2021 to counter the growing influence of cryptocurrencies. It was launched in the same month that the CBN slapped a ban on banks from providing financial services to cryptocurrency businesses; they were not allowed to operate an account in banks and other financial institutions. The CBN also ordered the closure of all bank accounts owned by cryptocurrency businesses, effectively crippling the operations of crypto exchanges.

Thus, the eNaira began its life with a public perception that it was created to make redundant an industry that many have come to embrace. Also, there was an industry perception that the creation of the eNaira did not take into consideration the input of industry stakeholders.

The CBN contracted a foreign company, Bitt Inc to develop the blockchain eNaira was built on. In fairness, the company had an antecedent of building CBDC. In 2019, the Barbados-based fintech firm signed a contract with the Eastern Caribbean Central Bank (ECCB), to test a blockchain-based CBDC inside the Eastern Caribbean Currency Union. But their expertise notwithstanding, many Nigerians felt it was a slight on the Nigerian tech ecosystem to go for a foreign company. Apart from that, some experts argued that the contract violated Executive Order No 5 (EO5) signed into law in February 2018 by President Muhammadu Buhari.

From the moment it was launched, the eNaira was trailed at every step by bad news. Barely days after it was launched by the CBN, the eNaira app disappeared from the Google Play Store, prompting the apex bank to post a message on its website stating that it would not be held accountable for any loss resulting from delays. The message only heightened people’s anxiety over the new product and didn’t help sell the message of improving financial services that the CBN later tried so hard to sell consumers.

The eNaira closed its first full year as a financial service in negative. According to a report by the International Monetary Fund in May 2022, showed that the total volume of transactions at 802,000 was less than the number of downloaded wallets at 919,000. The number of wallets rose to 13 million and the value of transactions grew by 63 percent to N22 billion in 2023, a report by Bloomberg showed. Unfortunately, the number of app installs has remained below 1 million on the Google Play Store and the reviews continue to be unflattering.

“I don’t understand this app. I played my part effectively during registration but the developers failed me. After entering my details they sent me a verification code without login credentials and I cannot log in to my wallet without wallet ID. I called customer care and they asked me to send mail which I did, but it is two weeks now and nobody responded. I tried creating another wallet but each time I tried the response was ‘ this number/email is not registered,” noted Walla Amos, a reviewer on Google Store.

Given the cNGN token, some sources said the plan is not to announce the eNaira has been abandoned but to direct all energy into developing the new CBDC.

“The eNaira will die a natural death,” said one of the sources.