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Nigeria has unveiled its central bank digital currency (CBDC), the eNaira, becoming the first African country to do so.
Nigerian President Muhammadu Buhari formally launched the eNaira with the theme of "same Naira, more possibilities".
Buhari spoke up about the opportunities of the eNaira during the press conference, stating that it has the potential to grow the economy of Africa’s most populous nation by $29bn over the next decade. That is equivalent to around a 7 percent boost on 2020's GDP figure at current prices.
The country, which was declared Africa’s largest economy last year, joins the likes of the Bahamas, as well as the Eastern Caribbean currency union of Antigua and Barbuda, Saint Kitts and Nevis, Saint Lucia and Granada, in the issuance of a CBDC.
The launch followed the publishing of a design paper, developed by the Central Bank of Nigeria (CBN).
This outlines the design of the CBDC, which is two-tier. The CBN manages the eNaira Speed wallet and maintains a central ledger of all transactions. It will also issue the eNaira to financial institutions that further distribute to citizens and facilitate retail payments.
Godwin Emefiele, the CBN’s governor, noted during the launch that there has already been "overwhelming interest and an encouraging response”.
So far, 33 banks, 2,000 customers and 120 merchants have registered successfully with the platform, which is available via an app on platforms including Apple and Android.
Within the discussion paper, the CBN noted eight ways in which the eNaira can improve the lives of Nigerians:
- Improving the availability and usability of central bank money.
- Supporting a resilient payment system ecosystem.
- Encouraging financial inclusion.
- Reducing the cost of processing cash.
- Enabling direct welfare disbursements to citizens.
- Increasing revenue and tax collection.
- Facilitating diaspora remittances.
- Reducing the cost and improving the efficiency of cross-border payments.
The time is now
The eNaira is a good idea whose time has come, said Raymond Alawode, a Nigeria-based payments analyst for Nigeria Interbank-Settlement Systems. “I believe that digital currency is the future of money and as technology advances, it is very crucial that central banks also evolve and adapt to the changes presented by the technologies.”
For Alawode, one of the benefits of the eNaira is the support it provides for the existing digital payment landscape in Nigeria. “It will foster the development of the country's digital economy by accelerating the shift from the use of cash to digital payments,” he said, pointing out that the eNaira will also reduce the cost of processing and cash handling by the CBN.
"The eNaira represents the good that digital currency can do in developing countries where the rewards of financial inclusion and real GDP lift far outweigh the potential risks,” noted Richard Turrin, a China-based fintech consultant and author of "Cashless: China's Digital Currency Revolution".
More tangible than GDP figures are what this new CBDC means for the 36 percent of Nigerian adults, or 38m, who remain completely financially excluded, he continued. “The design of the eNaria is similar to M-Pesa in that it can be used on phones that are not internet-enabled,” he said, making reference to Kenya’s mobile phone-based money transfer system that was launched in 2007.
“This thoughtful design consideration will no doubt help increase its uptake by keeping costs down and allowing use in more remote areas,” he said.
The eNaira could be a powerful instrument to solve the massive mainstream of the unbanked in our financial economy, agreed Dr. Obadare Peter Adewale, co-founder of Digital Encode, a Nigeria-based cyber consultancy and a technology consultant to the CBN.
“Will this come easily? Probably not, except if some enabling instruments are put in place,” he suggested, noting the potential of grassroots awareness campaigns and local translation artificial intelligence mechanisms being deployed through mobile banking apps.
Others, however, were not so sure due to the approach that the CBN is taking to roll out the eNaira.
“The current phase of the eNaira implementation is account-based,” said Alawode. Here, users are required to link their existing bank accounts to their digital wallets using an existing identity management system called Bank Verification Numbers (BVN).
“This approach is digitally banking the already banked and will not solve Nigeria's financial inclusion problems,” he argued.
Stablecoins at bay?
According to Turrin, the eNaira also reduces the risk of destabilisation, should stablecoins such as Diem become accessible in the region.
The rise of stablecoins has long been a concern for central banks, with some international regulators having argued that oversight of payment innovation in emerging African markets needs to be strengthened so that the financially excluded do not turn to cryptocurrencies for financial solutions.
“It serves as a deterrent to the local use of dollar-based stablecoins like Facebook’s Diem because it can provide similar levels of digital payment convenience,” he said. “This is important as there is a real fear of the dollarisation of local economies by stablecoins, which can destabilise.”
Meanwhile, Alawode was more optimistic about the possibilities that stablecoin initiatives could aid.
“There are quite a number of uncertain design factors and it is rather too early to assertively predict the trajectory for CBDCs and stablecoins, but I believe that stablecoins should be welcomed and used for payments in Nigeria,” he said, continuing that stablecoins have attributes that CBDCs do not. For example, they can engage with smart contracts on public blockchains, allowing decentralised financial services, unlike CBDCs which are generally issued on private ledgers.
CBDCs and stablecoins should be allowed to competitively co-exist so that the forces of regulation and adoption can determine their outcome, he summarised.
Hybrid Design
An account-based CBDC model has been chosen by the CBN, which seeks to enable access by leveraging the existing local identity infrastructure to uniquely identify individuals and corporate entities.
The eNaira will be a hybrid CBDC or a two-tiered CBDC architecture. With this architecture, the CBN will be responsible for issuing the eNaira, while it will leverage the existing financial system and actors, such as the financial institutions, in directing engagement with users for distribution of the CDBC, payment facilitation, dispute resolution and other roles, according to the CBN.
The eNaira infrastructure is based on the Hyperledger Fabric variant of the distributed ledger technology (DLT).
To undertake this, the CBN partnered with Barbados-based company Bitt, whose Digital Currency Management System (DCMS) is currently licensed by national financial institutions in six countries across Central America and the Caribbean.
The design will also contribute to greatly lowered costs for Nigerian citizens and businesses, according to Olufemi Fadairo, fraud management head at NIBSS, the country's interbank payments processor. “Today, an average lower-middle-income Nigerian spends something like 750 nairas on transaction charges monthly,” he said.
In comparison, the eNaira can have this reduced to as low as 50 nairas monthly if people would move their salaries into eNaira once and spend from the eNaira wallet for the rest of the month, he pointed out.
On the side of the government, one of the issues that have plagued the social interventions of government is the fact that the state has had to think about how to get the cash interventions to recipients who mostly live in rural areas where there are no banks, he said, noting that these people are often more likely to have phones.
“With the eNaira, the problem of disbursing such government interventions has been solved. Even programmes by donor partners and NGOs would have a verifiable accountability method now with the eNaira wallet.”
