After weeks of anticipation and postponement, Nigeria’s President Muhammadu Buhari finally launched the Central Bank Digital Currency (CBDC). The launch officially kicks off an era of digital transactions with the Central Bank of Nigeria (CBN) housing the national currency online.
The launch also means Nigeria is the first country in Africa to launch a CBDC. Other countries on the continent are still playing catch-up in the CBDC game. South Africa recently launched a trial of CBDCs for cross-border payments, while the central bank of Ghana is looking to make its digital currency, the e-Cedi, available to offline users soon.
The eNaira is no doubt one of the most topical issues in 2021 giving that it comes from a government that has taken a hard stance against the cryptocurrency market going as far as restricting banks and other financial services providers from providing support for the market. The eNaira has many people asking questions and we hear there is some unease in the banking industry on whether the digital currency would affect their operations and profit margins.
Here are answers to eight questions you may be too embarrassed to ask.
Is the eNaira a cryptocurrency?
No. the eNaira is merely a digital version of the naira currency. In other words, it is equivalent to the physical naira which is the official tender of Nigeria and liability of the CBN. The eNaira will always be exchanged 1:1, meaning it would only appreciate when the naira is stronger. It goes weak when the naira is weak. Cryptocurrencies are decentralised, that is, not under the control of a central authority hence their prices are often subject to volatility.
The only similarity the eNaira bears to a cryptocurrency is that it is built on the blockchain hence it has to be minted. The blockchain was developed by Bitt Inc.
Who needs eNaira?
Everyone that transacts or makes payments to any business or individual within the country needs eNaira. It is available on the eNaira wallet which anyone with a smartphone can download on the Play Store or iOS platforms.
Why does the CBN need digital currency?
Digital banking is growing in terms of adoption and in form. The notion of freedom that cryptocurrencies introduced – not under the control of central banks and banks – has become appealing to many hence the growing adoption around the world. Nigeria is currently the largest country in Africa in terms of peer-to-peer cryptocurrency transactions. In other words, it has the largest number of people embracing the crypto world’s notion of financial freedom.
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The concept of CBDCs, therefore, has become a necessity for central banks seeking not to lose control of the financial system. Central banks exist to safeguard monetary and financial stability for the public good. CBDCs are a tool to pursue this through enhancing safety and neutrality in digital payments, financial inclusion and access, innovation, and openness.
Who controls the eNaira?
A guideline on eNaira issued by the CBN noted that the apex bank will be the authorised issuer of the digital currency, as well as the sole distributor. The CBN also has the power to redeem and destroy the eNaira.
Institutions licenced by the CBN under the Financial Institution Suite of the guideline are only allowed to request for the eNaira or stablecoins and manage it across their branches – similar to the naira implementation.
A bank or any authorised financial institution will maintain one treasury eNaira wallet where they store the digital currency they received from the CBN. They are also allowed to create sub-treasury wallets for branches tied to it and fund them from its single eNaira treasury wallet with the CBN.
How many eNaira has been minted?
Godwin Emefiele, the Governor of the Central Bank of Nigeria said at the launch that some 500 million eNaira ($1.21 million) have already been minted.
What is in it for you?
The eNaira means less cost managing the naira and possibly charges. For example, you have N1 million to send to a friend, you go to the bank, change the eNaira and send at no fees.
Many experts say it will facilitate the ease of doing business in Nigeria, enhance the means of payment for transactions carried out both locally and internationally.
How does it profit the economy?
During his presentation at the launch, President Muhammadu Buhari said the eNaira is expected to boost the country’s GDP, by $29 billion in the next ten years. The premise is on the potential of CBDCS to increase remittances, foster cross-border trade, improve financial inclusion, make Monetary Policy more effective, and enable the government to send direct payments to citizens eligible for specific welfare of Nigerians.
Will the eNaira compete with existing digital banking wallets?
According to Kalu Aja, a personal finance expert, competition is not likely given that the eNaira will be used by operators in the financial services industry including fintech.
However, Samora Kariuki, founder of Frontier Fintech Newsletter said the eNaira will only be useful for its programmability and accessibility. The CBN has to enable fintechs and other players to innovate on top of the eNaira system through open APIs.
“Players can emerge in this space with organisational structures and practices custom-built for eNaira based merchant lending,” Kariuki noted.
