AfCFTA: Central Bank Assures e-Naira Would Increase Cross-border Trade, Tax Efficiency

Eromosele Abiodun, James Emejo and Nume Ekeghe
In the wake of the implementation of the African continental free trade area (AfCFTA), the Central Bank of Nigeria (CBN) has stated that another component and incentive of the E-naira, which is slated to launch soon, would be its ability to enhance tax efficiency as well as improve cross-border trade.

The Director Monetary Policy Department, Dr Hassan Mahmud said this yesterday at the 31st seminar for finance correspondents and business editors in Enugu where stakeholders converge to discuss, “Trends in the Nigerian System: Regulating the Fintech Digital Playing field.”

Presenting his paper titled Implications of trends in the digital financial ecosystem for monetary policy implementation virtually, Mahmud said that part of the motivation to launch the digital currency is the ability to aide Cross-border trade and boost tax efficiency amongst others.

He said: “The Central Bank of Nigeria in partnership with Bitt Inc., an international fintech firm, is set to launch its digital currency, e-Naira and this would increase cross-border trade, accelerated financial inclusion, bring about cheaper and faster remittance inflows. It would help with easier targeted social interventions, improvements in monetary policy effectiveness, payment systems efficiency and efficiency in tax collection.”

He further noted that the CBN digital currency will offer parity of value and will operate as a non-interest-bearing asset and that Nigeria’s digital currency will function under a tiered Anti-Money Laundering and Know Your Customer (AML/KYC) structure with different transaction limits.
He added: “The AML/KYC pyramid will reportedly encompass unbanked citizens to provide their national identity-linked phone numbers for verification and users in this category will be limited to a daily transaction limit of N50,000 (about $120).”

He further added that the Fintech space in Nigeria is growing rapidly and that it is estimated that Nigeria’s Fintech landscape consists of around 250 Fintechs.
He added: “From 2014 to 2019, Nigeria’s Fintech scene raised more than $600 million in funding and their core functions have been to facilitate payments using wallets, processors, merchant service providers for maintenance of mobile, domestic and cross border transactions.

“Savings and wealth management platforms offering investment options in diverse industries. Retail and MSME lending activities offering instant, unsecured, short-term loans to retail customers leveraging alternative credit scoring algorithms and data and automate processes for personal finance, merchant solutions, and financial institutions.”

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, had at the event on Tuesday emphasised on the need for an increased and intensive regulatory scrutiny on the part of regulators to proactively monitor developments in electronic and digital payment systems amidst the growing impact of financial technology companies (Fintechs).

He said regulators must also ensure the continuous safety and soundness of the financial ecosystem adding that by its sheer population estimates, the country remained primed to be an active playground for digital transformation and could not afford to ignore the Fintech challenge.
This is as he also clarified that contrary to speculations, the planned unveiling of the Central Bank Digital Currency (CBDC) also known as the eNaira, would not exacerbate inflationary pressures on the economy.

The CBN governor noted that discussions had increased around the issue of the digital economy as more opportunities have emerged for financial institutions and other players within the payment ecosystem to innovate and provide more efficient options for payments and settlements.
Emefiele, spoke in Enugu State while declaring open the CBN’s 31st Seminar for Finance Correspondents and Business Editors, themed, “Trends in Nigerian Payments System: Regulating the Fintech Digital Playing Field”.

He however said that regulators must keep pace with these exponential developments in the digital financial landscape and leverage new knowledge and technology tools to enhance the efficiency and effectiveness of their mandate.

He pointed out that from all indication, digital revolution would remain a focus for financial institutions in the months ahead, therefore making Fintechs a major driver of the industry.
Represented by CBN Deputy Governor, Corporate Services Directorate, Mr. Edward Lamekek Adamu, the apex bank boss said technology had continued to change the face of the financial services industry adding that the advent of digital financial services had created faster, more efficient, and typically cheaper transactions compared to traditional financial services.

According to him, “As the global economy recovers from COVID-19, it is obvious that Fintech will play a more important role towards resilient and sustainable recovery.
“Studies have already shown that only one per cent of Fintechs have been critically affected by COVID-19 and two per cent severely affected. By comparison, around 17 per cent of other high-growth companies fall into these categories. It is therefore unsurprising that many Finfechs have experienced a surge in demand as working practices and customer banking habits changed.”