eNaira and Future of Money

Obinna Chima writes on the expected benefits of the newly introduced eNaira

President Muhammadu Buhari last week unveiled the Central Bank Digital Currency (CBDC), also known as the eNaira, in Abuja.

According to an elated Buhari, with the launch of the digital currency, the country’s Gross Domestic Product (GDP) was projected to rise by $29 billion in the next 10 years.

He stressed that Nigeria was the first country in Africa and one of the first in the world to introduce digital currency.

The president stated, “Indeed, some estimates indicate that the adoption of CBDC and its underlying technology, called blockchain, can increase Nigeria’s GDP by US$29 billion over the next 10 years.

“CBDCs can also help 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 programmes.”

The president assured Nigerians of the safety and scalability of the CBDC. He disclosed that the journey to create a digital currency for Nigeria began in 2017.

According to him, “Work intensified over the past several months with several brainstorming exercises, deployment of technical partners and advisers, collaboration with the Ministries of Communication and Digital Economy and its sister agencies like the Nigerian Communications Commission (NCC), integration of banking software across the country and painstaking tests to ensure the robustness, safety and scalability of the CBDC System.”

With the digital currency, local or international transfers can occur almost instantly and require much lower fees than the traditional system. It would drastically minimise the task of verifying funds or risk-monitoring in each banking platform, since CBDCs are the actual fiat currencies in digital form. Also, the reduction of fees at faster transfer rates that come with the initiative, also promotes economic growth and benefit lower classes through low payment fees and higher accessibility to funds.

Digital Currency and Evolution of Money

According to a report by PwC, a global professional services firm, throughout history money has evolved. Beginning with the use of everyday objects, to precious metals, to the gold standard and finally, to fiat in 1971, money has changed in line with broader technological and social shifts.

It noted that the development of computer technology in the second part of the twentieth century allowed money to be represented digitally.

According to the report, by 1990, in the United States, all money transferred between its central bank and commercial banks was in electronic form.

It noted that by 2000s most money existed as digital currency in bank databases.

While digital money has been around for a few decades, many argue that we are now at the verge of digital money 2.0.

Not the account-based electronic money that’s been around for the past several decades, but a new type of token-based digital money. Tokenisation, often via blockchain, is the basis of cryptocurrencies, stablecoins, and many proposed central bank digital currencies.

It stated that the new wave of tokenised money started with the introduction of Bitcoin in 2008 as the first widely used, decentralised, peer-to-peer, cryptocurrency based on distributed ledger technology called blockchain.

Furthermore, it stated that another inflection point came with the announcement of Libra (now renamed Diem) in 2019, by Facebook. Conceived as a private stablecoin – a privately issued crypto currency pegged to a stable asset (e.g. fiat money, physical gold etc) – Libra/Diem led to the development of a number of other stablecoins.

“It is against this backdrop that central banks around the world have ramped up interest in CBDCs. Conceived as a digital representation of fiat currency, CBDCs are a liability of the central bank in the same way as physical currency.

“This is a major differentiator between CBDCs and other tokenised money forms such as cryptocurrencies and stablecoins,” it explained.

Benefits of eNaira

According to the CBN Governor, Mr. Godwin Emefiele, with growing interest in CBDC around the world, the CBN had commenced extensive study, consultations, identification of use cases and the testing of the CBDC concept in a Sandbox environment as far back as 2017. He said the objective of the research was to establish a compelling case for the adoption of a digital currency in the country to enable a more prosperous and inclusive economy for all Nigerians.

He added that following the completion of the preliminary work, the researchers and experts at the CBN were able to establish that a digital currency will drive a more cashless, inclusive, and digital economy as well as complement the gains of previous policy measures and the fast growing payment platforms.

He said the CBN decided to implement its own CBDC and to name the digital currency eNaira, with the expectation that the innovation would make significant positive difference to Nigeria and Nigerians, he stated.

Emefiele said the eNaira would support a resilient payment ecosystem, encourage rapid financial inclusion, reduce the cost of processing cash, enable direct and transparent welfare intervention to citizens and increase revenue and tax collection.

He said eNaira would also facilitate diaspora remittances, reduce the cost of financial transactions, and improve the efficiency of payments.

Emefiele added, “Therefore, the eNaira is Nigeria’s CBDC and it is the digital equivalent of the physical naira. As the tagline simply encapsulates, the eNaira is the same naira with far more possibilities.

“The eNaira – like the physical naira – is a legal tender in Nigeria and a liability of the CBN. The eNaira and naira will have the same value and will always be exchanged at one naira to one eNaira.”

Emefiele said in a bid to further de-risk the process, CBN had given careful consideration to the entire payment and financial architecture and designed the eNaira to complement and strengthen these ecosystems. He said the bank had also implemented safeguards and policies to maintain the integrity of the financial system.

The CBN boss added that there would be strict adherence to the anti-money laundering and combating the financing of terrorism (AML/CFT) standards in order to preserve the integrity and stability of Nigeria’s payment system.

He said since the eNaira platform went live, there had been overwhelming interest and encouraging response from Nigerians and others across the world, with over 2.5 million daily visits to the website.

According to him, 33 banks are fully integrated and live on the platform while N500 million had been successfully minted by the central bank, including N200 million, which had been issued to financial institutions.

Emefiele said over 2,000 customers have been on-boarded while120 merchants had successfully registered on the eNaira platform.

He said, “Today, customers who download the eNaira Speed Wallet App will be able to perform the following: Onboard and create their wallet, fund their eNaira wallet from their bank account, transfer eNaira from their wallet to another wallet, and make payment for purchases at registered merchant locations.”

Emefiele acknowledged there was a continuing debate on the true value of the naira, adding, “rather than worry today on the direction of the exchange rate, let us take a step back and analyse how we got here, in the first place.”

Speaking further, Emefiele said: “We would not embark on a project where we have not really dimensioned the risks; you identify risks and you now measure the risks and then we think about how to manage the risks and we have looked at it.

“There is no need, absolutely no reason for anybody to be afraid of the risk of even hacking your account and the rest of that.”

He added, “This morning I set up my account and my account is operating very well. I talked about the BVN; the BVN is one of the best payment systems infrastructure that we have put in place and I can assure you that with all that has been done, you cannot hack into it.

“If somebody hacks into yours, it will be because you were reckless in handling your information but not that the system failed.”

He described eNaira as an extension of the payment system in Nigeria, which would enhance payments outside the country.

To the Advisory Partner and Chief Economist, PwC Nigeria, Dr. Andrew Nevin, the eNaira would not only ensure cheaper transactions, but would take banking services to the poorest and most vulnerable in the society.

He stated that the launch of the e-naira would cut the cost of printing cash and getting it in the hands of people, stressing that it would also create money in a very simple form and reduce the problems associated with the use of current electronic forms of transactions.

While pointing out that the medium would dramatically cut all the complexities associated with existing systems, Nevin described it as a, “one person to one person” platform, adding that a lot of functions could be built into it in the future.

“So, it becomes very easy for someone who is in the diaspora, say Wisconsin, to be able to go on a website or an app and instantly transfer value to their mother in the village in Enugu for example and that’s really a major change,” he stated.

In a very short time, the PwC chief economist stated that Nigeria could become the largest country that uses Central Bank Digital Currency, assuring that it was going to be a beacon for all African countries.

“I think Nigerians are going to find out that it’s just very easy to use it. They are used to the way this instant value transaction works, instant movement of value from all of their experience with crypto assets but now we’ve taken that same technology, not with some dubious asset we are not sure of the value. So, I think the uptake will be very fast,” he added.