Central banks all over the world have realised that they need to provide an alternative to the growing popularity of cryptocurrencies and stablecoins or let the future of money pass them by.
Central bank digital currencies (CBDCs) are versions of cash that are more secure and less volatile than crypto assets because they are issued and regulated by central banks. They are digital versions of a country’s physical currency, for example, a digital dollar, euro, pound, yuan or naira.
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In response to the emerging trends and developments in the global digital space, the Central Bank of Nigeria (CBN) launched the eNaira over a year ago to, among other things, provide Nigerians with a cheap, safe and trusted means of payment within the domestic and global economy.
Nigeria was the second country after the Bahamas to roll out a CBDC. According to the Atlantic Council’s CBDC tracker, Nigeria is one of the 11 countries to have fully deployed a central bank digital currency, the other 10 are in the Caribbean.
Several sub-Saharan African central banks are exploring or in the pilot phase of a digital currency following Nigeria’s October 2021 introduction of the e-Naira
Within a year, over N3billion worth of eNaira was minted, while over 700,000 transactions, amounting to N8billion, were recorded on the platform.
According to the governor of the apex bank, Godwin Emefiele, 33 banks have been fully integrated, more than 3,305 merchants registered and 919,000 customers on-boarded.
To underscore the overwhelming interest and encouraging response from Nigerians and other parties across the world, he said the eNaira website attracted an average of 2.5million daily visits.
Financial inclusion, targeted welfare, fight against corruption
There are many reasons to explore digital currencies, and the motivation of different countries for issuing CBDCs depends on their economic situation.
The first is promoting financial inclusion. CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use. In remote areas without internet access, digital transactions can be made at little or no cost, using simple feature phones.
Approximately, 45 per cent of adult Nigerians do not have bank accounts while 35.9 per cent are excluded from formal financial services. However, about 81 per cent of the adult population in Nigeria own mobile phones; in addition, there are about 150million mobile Subscribers in Nigeria. Therefore, the eNaira can leverage the huge opportunity mobile telecommunications present as a distribution channel for the offering of digital financial services to the underserved and unbanked population.
It comes as no surprise that the CBN launched the eNaira USSD channel using *997# in August 2022. To facilitate interoperability, the NIBSS Instant Payment (NIP) solution, which allows eNaira users to seamlessly transact between the eNaira and any bank of their choice across the country, was also made available the same month. The feature received wide usage by users, recording over N301m worth of transactions in less than 90 days.
CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster. And experts believe this is where the eNaira can help the government achieve most of its interventions targeted at the poor.
With the right deployment of the CBN-backed digital currency, funds for TraderMoni, FarmerMoni, MarketMoni, N-Power and others can be distributed directly to beneficiaries, thereby eliminating misappropriation, exploitation by middlemen, as well as the danger involved in cash handling, to mention a few.
With the eNaira, the federal government can directly impact the victims of the recent flooding, which affected at least 32 states.
It is gratifying that the CBN is collaborating with the Ministry of Humanitarian Affairs through the creation of sector-specific tokens to support federal government’s social programmes and distribution of targeted welfare schemes in a bid to lift millions out of poverty by 2025, according to Emefiele.
CBDCs can also facilitate cross-border transfers and payments. Over the years, the demand for seamless and inexpensive cross-border payments has grown in parallel with growth in international e-commerce, remittances and tourism.
However, the sub-Saharan Africa is the most expensive region to send and receive money, with an average cost of just under 8 per cent of the transfer amount.
CBDCs, like eNaira, could make sending remittances easier, faster and cheaper by shortening payment chains and creating more competition among service providers. Faster clearance of cross-border payments would help boost trade within the region and with the rest of the world, according to the International Monetary Fund (IMF).
A consultant, Dr Aminu Bizi, believes that the eNiara can boost Nigeria’s benefits from the African Continental Free Trade Area (AfCFTA).
The Atlantic Council noted that CBDCs, such as the eNaira, can improve the transparency of money flows. Cash is essentially untraceable, and this helps to facilitate crime. The eNaira can help the government and its agencies to easily trace money flows in the society. For instance, with the eNaira, it will be difficult for a distributor to collect money for fuel subsidies and divert the same for luxury abroad.
“The eNaira is account-based, and transactions are in principle fully traceable, unlike token-based crypto asset transactions.
“Once the eNaira becomes more widespread and embedded into the economy, it may bring greater transparency to informal payments and strengthen the tax base. Informal and formal businesses may also benefit if eNaira adoption enhances consumption through greater financial inclusion,” noted the IMF in one of its reports on CBDCs.
Global attention
The over 13 months success of the eNiara has made Nigeria an educational hub for knowledge acquisition on Central the CBDC as the CBN has organised and conducted several knowledge sharing sessions for international financial institutions, including the IMF, World Bank Group, as well as African Central banks, such as the Bank of Uganda and the Reserve Bank of Zimbabwe.
The CBN governor, Emefiele, during the first anniversary of the eNaira noted that with numerous requests from various institutions to partake in the knowledge sharing session; and in a bid to institutionalise the progress made in implementing the CBDC, as well as the trends, size and regulatory challenges of digital financial assets and innovations, a digital finance programme had been developed to ensure knowledge sharing that guarantees a secure, efficient and reliable financial system and inclusion, while creating the climate for projecting the success of the bank in the development of digital currency and implementation.
“The digital finance programme is poised to be a hub for knowledge generation in digital assets in Africa, building competences in Fintech, Blockchain technology, decentralised finance (DeFi), Central Bank’s Digital Currencies (CBDC), financial innovation, digital financial literacy, RegTech and risk amongst others, limiting vulnerability of the financial system to cyber-attacks and fraud,” he proudly said.
He added that the research department of the apex bank had produced a compendium of outcomes, comprising 38 articles bordering around central digital currencies and FinTechs as they relate to financial stability, monetary policy implementation and effectiveness, cross border payments and remittance, as well as regulation and supervision. He said the articles provided theoretical and empirical insight into the likely impact CBDCs and FinTechs would have on the Nigerian economy, and purported risks could be mitigated.
Central banks in Africa and across the world are looking to draw lessons from Nigeria’s eNaira.
Challenges
The introduction of the eNaira has not come without its challenges. However, the risks, which have forced some countries to suspend the introduction of digital currency, have been successfully addressed in Nigeria.
However, as at today, less than 1 per cent of Nigeria’s population is using the eNaira despite the fact that crypto adoption is high in the country. The bank must critically look at why the younger generations are not adopting it as a store of value.
The apex bank must leverage the robust collaborative environment in the payments and digital financial services ecosystem by engaging the super agents, Fintechs, Association of Licensed Mobile Payment Operators (ALMPO), Association of Licensed Telecoms Operators of Nigeria (ALTON), among others, to foster greater adoption, especially in the underserved and unbanked segments of the population.
“The CBN acknowledges the daunting task ahead. We, therefore, call on the all relevant stakeholders, including financial institutions, NIBSS, FinTech groups, Telcos and merchants to collaborate, innovate, deepen and enhance the value of eNaira to Nigerians and Nigeria.
“It is the bank’s hope that the eNaira would drive the digital economy agenda and foster a more prosperous Nigeria,” Emefiele said.
However, a positive sign is that those who have adopted the eNaira are active users, according to a senior director of the Atlantic Council’s GeoEconomics Centre, Josh Lipsky, as quoted by Bloomberg. That’s the opposite of China, where millions opened wallets during a pilot CBDC phase but with very low activity for the average user, he said.
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