Why CBN is pushing for eNaira

Since the launch of the eNaira, a central bank digital currency (CBDC), in October 2021, Nigerians have remained unsure about the true intentions of the government.

Many Nigerians see the eNaira as an alternative to the cryptocurrency, whose growing adoption informed the government’s decision to ban it.

CBDCs are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of a country’s fiat currency.

Experts say the federal government came up with a digital currency because there is a high rate of adoption of cryptocurrencies in Nigeria by its youths.

“The Nigerian government wants a situation where it can monitor the wallets of the youths. With the use of a distribution ledger technology, of which the digital blockchain is one, transactions or accounts cannot be tracked, or even halted. In contrast, the eNaira is one that can be controlled by the federal government,” Rume Ophi, a crypto trainer, said.

While the CBDC thrives in other countries including China, India, Sweden, and Jamaica, Nigeria is still struggling to achieve the purpose for introducing the eNaira.

“CBDC is supposed to aid transactions both within and outside a country but it’s unfortunate that right now, CBDCs are not able to work either or because these currencies have been issued in a manner that is silo-based using different infrastructures peculiar to the government or country which makes it almost technically unusable because of compatibility issues,” Lucky Uwakwe, a blockchain expert, said.

According to the International Monetary Fund, CBDCs are more cost-efficient than physical cash as they have lower transaction costs. They can also promote financial inclusion; this means that those who are unbanked can get easier and safer access to money on their phone. They can compete with private companies that need incentives to meet transparency standards and limit illicit activity, and can help monetary policy flow more quickly and seamlessly.

“The amount used for printing physical notes is quite alarming and with the CBDC put in place, sending money will be much easier. But I don’t know of anyone who is using CBDC for transactions in Nigeria. This is because the people are smart and already know what cryptocurrencies can offer which the Nigerian CBDC cannot beat,” Ophi added.

Six months after the eNaira was launched, BusinessDay finds out that although it is in use, the volume it ought to have gathered over the month of existence is low. This, Ophi said, might be as a result of trust.

The inability of the naira to convert to eNaira despite bank applications having a specific section for it is a major concern. In some cases, accounts will be debited but after sometime, the money will be reversed, making the process abortive.

Ophi said: “The reason CBDC is struggling for relevance in Nigeria is trust. People don’t trust the government and their innovations, unlike crypto that has been in existence for a long time around 2009 and Nigerians joined in 2013.

“The fuss made about concerns surrounding crypto by the federal government was under the guise of their own motive, plus the advantages of crypto outweigh that of CBDCs.”

Some experts blame the Central Bank of Nigeria (CBN) for the challenges facing the CBDC including lack of adequate sensitisation, and inability to make the idea an attractive one. For others, the eNaira came from a vindictive approach, which looked like an attack on the crypto system that is faceless.

For Ophi, the eNaira is still the naira, nothing changes especially with the dwindling situation of the economy with infrastructures still yet to be put in place, terrible erratic power supply, inflation, and instability in the country’s foreign exchange market.

Experts say CBDCs are supposed to be built such that if Ghana and Nigeria’s CBDCs were to interact, it should be seamless.

“Somebody in China should be able to send their own CBDC to a person in Nigeria and vice-versa, so as to interact on a peer to peer level. The eNaira lacks this functionality coupled with the technical hitches preventing its usage now, despite all the rankings obtained from international surveys which I see as an achievement,” Uwakwe said.

To clear these challenges, there are certain infrastructures needed to be adopted by the CBN to make the eNaira interoperable. According to Uwakwe, free flow and the carbon blue innovations, among others, are some of these infrastructures. This will aid bilateral trade among businesses.

Free flow finance infrastructure is a World’s First Cross-Border Retail Payments Infrastructure and Digital Finance as-a-Service Platform focused on regulated digital currencies like CBDC where CBDCs can become spendable even beyond border due to their FX infrastructure for CBDCs as well.

Read also: What more to CBN’s e-naira after launch?

Both the government and the CBN are optimistic about the eNaira because of the economic impact they believe it could have on Nigeria. President Muhammadu Buhari recently said over the next 10 years the eNaira would lead to a $29 billion increase in Nigeria’s gross domestic product.

Godwin Emefiele, the CBN governor, said the eNaira would help reduce Nigeria’s heavy reliance on imports. But the question on the mind of experts is how realistic are these goals set for the eNaira.

Uwakwe recommends that the infrastructure used to build the eNaira must be upgraded to drive adoption. Integration of application programming interface for banks and other financial institutions to enable connectivity between the eNaira, and banks, traditional and digital payment rails, digital wallets, and other fintechs.

To solve the settlement challenge in other countries where Nigeria carries out business transactions such as China, Dubai, United States of America and India, the eNaira should be able to settle in these countries without any glitch. Uwakwe says the free flow infrastructure is the best mechanism to achieve this functionality as a CBDC.