At the end of October last year, the Federal Government of Nigeria and the Central Bank of Nigeria (CBN) officially introduced the blockchain-based eNaira as a means of payment, making Nigeria the first African country with an official digital currency.
Both the government and the CBN are optimistic about the eNaira because of the economic impact they believe it could have on Nigeria. With President Buhari claiming that over the next 10 years the eNaira will lead to a $29 billion increase in Nigeria’s GDP.
The CBN governor, Godwin Emefiele, further asserted that the eNaira will help reduce Nigeria’s heavy reliance on imports. But how realistic are these claims and goals set for the eNaira?
Domestically, the eNaira could greatly benefit Nigeria by further increasing the speed at which money moves through the economy and the total amount of money cycling through the Nigerian economy, namely, gross domestic product (GDP). This is due to the likelihood of less money being lost in physical cash handling and less reliance on POS machines and internet banking.
For Nigerians, it offers a payment method that does not require conventional financial institutions, such as banks, but rather it gives users the ability to make direct cash payments through their mobile device without a mandatory transaction fee which other Fintech platforms tend to have.
ENaira could also play an important role in the government’s goal in collecting tax revenue as Naira will be far easier to track with it being digitised. With more tax revenue, the government can use this for further economic development.
The eNaira and CBDCs as a whole could be vital in making cross-border trade within Africa a more common practice by making it easier to do so.
Trading among African countries is currently difficult due to different currencies and complicated exchange rates. Now with the introduction of a digitalised currency it could allow for transactions to be made much faster and bypass these exchange rates.
Easier trade within Africa would be beneficial to the Nigerian economy, as it would give access to cheaper goods and services for consumers from different parts of the continent. It would also give Nigerian businesses opportunities to tap into new markets which could help increase Nigerian exports. This would not only increase Nigeria’s GDP, but it would help reduce the size of Nigeria’s large trade deficit.
Although, it should be considered that for this to be effective it would require other African nations to establish their own CBDCs. Due to this, it is likely that in the present eNaira may not lead to an immediate increase in cross-border trade and payment, but in the long term it could have significant benefits.
So, it is possible that the eNaira has the potential to greatly impact the Nigerian GDP as claimed by the President. However, there are major barriers and structural problems that could hinder the eNaira’s success that cannot be ignored.
One of these issues is the lack of nationwide internet access, which is a major barrier to digital success in Nigeria. For many Nigerians, internet access is not easy to come by as the cost of data is often quite expensive and free internet access is uncommon.
This is reflected by the fact that only 4 percent of Nigerians use mobile banking, according to the World Bank.
In the same report, the World Bank estimated that 42 million Nigerians live in areas that do not have formal banks and hence do not have formal bank accounts.
As eNaira requires a formal bank account, these 42 million people will not be able to use eNaira. Perhaps these ‘hurdles’ account for the low uptake of the eNaira, making up just 10 percent of all peer-to-peer transactions, which is much lower than the CBN would have aimed for.
In February 2021, CBN banned all cryptocurrency transactions across Nigeria and had mentioned that it would come up with an alternative.
One of the main reasons being that it cannot be regulated or controlled by the apex bank. Similar to cryptocurrency, the eNaira offers a blockchain-based peer-to-peer payment method for Nigerians. However, where eNaira differs is that it requires identification linked to a bank account, so that all information is visible to the CBN.
For a lot of Nigerians, accessing formal identification such as National Identification Number is a difficult process and can take months to attain. On top of this the International Money Fund (IMF) has raised concerns about the possibility of the eNaira being used for money laundering as well as to finance terrorist activites. This is mainly due to the eNaira being able to be transferred across borders instantly.
This also leads to the issue of privacy; as Naira transactions now lose their anonymity with eNaira. Many governments worldwide have been sceptical about adopting CBDCs because of this issue.
This was the main reason why the UK Parliament rejected adopting digital Pound Sterling, and will most likely not introduce it until it can be resolved. Although the Central Bank said the eNaira is built with “deep considerations around privacy”, many still remain sceptical.
So, from what has been said, it is clear that the eNaira has the potential to positively impact Nigeria’s economy, in different ways. However, there are many barriers that are likely to be inimical to the growth and success of the eNaira, which the CBN and FGN will have to overcome to make eNaira accessible and common means of payment for Nigerians nationwide.
