In most developed economies like the US, UK, and parts of Europe, the use of paper currency in business transactions is often viewed with disapproval. Where it does occur, it is limited in quantity compared to developing or underdeveloped economies, where transacting with large sums of paper currency is still common practice.
Conducting business with paper currency as opposed to digital currency has numerous drawbacks, including susceptibility to theft, destruction, and inflationary pressures that reduce purchasing power. Additionally, paper currency is highly flammable, posing a significant risk in the event of a fire, which further threatens environmental and human well-being. Other challenges include the high cost of minting new currency and the associated handling expenses over time. Furthermore, paper currency presents significant security risks to its holder and lacks the portability of e-currency.
Read also: Currency risks could keep Nigeria long-term investors cautious Afreximbank
Stakeholders in the banking and finance sectors argue that some measures to curb money laundering and financial misconduct include the whistleblower policy, forensic audit exercises, the NOCLAR principle, and the holistic adoption of e-currency, to name a few.
It is in a bid to address these myriad challenges posed by paper currency that the introduction of e-currency has gained traction as a potential solution.
“Stakeholders in the banking and finance sectors argue that some measures to curb money laundering and financial misconduct include the whistleblower policy, forensic audit exercises, the NOCLAR principle, and the holistic adoption of e-currency, to name a few.”
E-Currency explained
e-Currency is a digital form of fiat currency that can be used to pay for goods and services by individuals or organisations that have e-currency wallets. In Nigeria, the e-currency platform, known as the e-Naira, was introduced on October 25, 2021, and was designed to complement the physical Nigerian currency. Additionally, e-currency refers to funds or money stored and transferred electronically via cryptocurrencies and other digital payment platforms. Examples include cryptocurrency, e-currency funds, and digital tokens.
Government’s role
The Nigerian Government, through the Central Bank of Nigeria (CBN), recently announced plans to release e-Naira version 2.0 in the near future. The CBN noted that it would be a faster and cheaper payment system. Furthermore, it stated that e-currency would help reduce fraud and fraudulent activities when fully implemented. These updates were captured in the release titled “Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for Fiscal Years 2024–2025.”
Usage
One key aspect of e-Naira (e-currency) is its ability to be used for a wide range of transactions, including purchasing recharge cards online, paying utility bills (such as electricity and water), facilitating person-to-person and organisation-to-organisation transfers, and even international trade.
Read also: Nigeria needs FX stabilisation fund to cushion effects of currency fluctuations on FMCG Folorunsho
Challenges
Despite its promise, the introduction and usage of e-currency face challenges such as regulatory compliance, the risk of scammers, price fluctuations, unstable communication networks, human resistance to change or new innovations, and the need for specialised IT platforms.
Potential benefits
Despite the aforementioned challenges, the benefits of e-currency are enormous and far outweigh the constraints. These benefits include ease of accessibility, speed, and lower costs of conducting financial transactions. It is considered a more economical payment system that reduces handling costs. e-Currency also features low transaction fees, enabling convenient electronic transfers. By discouraging the practice of carrying physical cash, it helps reduce the incidence of theft and fraud. The platform enhances payment efficiency, financial inclusion, and security. Additionally, it promotes financial transparency and stability.
Finally, the e-currency system serves as a significant pillar for the much-talked-about digital economy, provided it is properly maintained.
Kingsley Ndubueze Ayozie KJW, MSc (Finance) Lagos, MBA, ACSI (UK), FCTI, FCA — a Finance enthusiast and Chartered Accountant by profession, writes from Lagos.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
