Central banks around the world realized they had to provide an alternative to the growing popularity of cryptocurrencies and stablecoins or let the future of money slip away.
Central bank digital currencies (CBDCs) are safer and less volatile versions of cash than crypto assets because they are issued and regulated by central banks. These are digital versions of a country’s physical currency, such as a digital dollar, euro, pound, yuan, or naira.
In response to emerging trends and developments in the global digital space, the Central Bank of Nigeria (CBN) launched eNaira over a year ago to, among other things, provide Nigerians with a cheap means of payment , safe and reliable within the country. and the global economy.
Nigeria was the second country after the Bahamas to deploy a CBDC. According to the Atlantic Council’s CBDC tracker, Nigeria is one of 11 countries to have fully deployed a central bank digital currency, the other 10 are in the Caribbean.
Several central banks in sub-Saharan Africa are exploring or are in the pilot phase of a digital currency following the introduction of e-Naira in Nigeria in October 2021
In one year, more than 3 billion naira worth of eNaira has been minted, while more than 700,000 transactions, worth 8 billion naira, have been recorded on the platform.
According to the apex bank governor, Godwin Emefiele, 33 banks have been fully integrated, more than 3,305 merchants registered and 919,000 customers onboarded.
To highlight the massive interest and encouraging response from Nigerians and other parties across the globe, he said the eNaira website is attracting an average of 2.5 million daily visits.
Financial inclusion, targeted social protection, fight against corruption
There are many reasons to explore digital currencies, and the motivation of different countries to issue CBDCs depends on their economic situation.
The first is the promotion of financial inclusion. CBDCs could bring financial services to people who did not have bank accounts before, especially if they are designed for offline use. In remote areas without internet access, digital transactions can be done at little or no cost using simple feature phones.
About 45% of adult Nigerians do not have a bank account while 35.9% are excluded from formal financial services. However, about 81% of Nigeria’s adult population owns a mobile phone; in addition, there are approximately 150 million mobile subscribers in Nigeria. Therefore, eNaira can leverage the huge opportunity presented by mobile telecommunications as a delivery channel for delivering digital financial services to the underserved and unbanked population.
It is 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 make seamless transactions between eNaira and any bank of their choice. across the country, was also made available the same month. The feature has been widely used by users, registering more than 301 million naira in transactions in less than 90 days.
CBDCs can be used to distribute targeted social benefits, especially during sudden onset crises such as a pandemic or natural disaster. And experts believe this is where eNaira can help the government deliver most of its pro-poor interventions.
With the proper deployment of CBN-backed digital currency, funds for TraderMoni, FarmerMoni, MarketMoni, N-Power and others can be distributed directly to beneficiaries, eliminating misappropriation, exploitation by middlemen, as well as the danger of handling cash, to name a few.
With eNaira, the federal government can have a direct impact on the victims of the recent floods, which affected at least 32 states.
It is gratifying that the CBN is collaborating with the Department of Humanitarian Affairs through the creation of sector-specific tokens to support federal government social programs and the distribution of targeted social programs with the goal of lifting millions of people out of poverty. by 2025, according to Emefiele.
CBDCs can also facilitate cross-border transfers and payments. Over the years, the demand for transparent and inexpensive cross-border payments has grown alongside the growth of international e-commerce, remittances and tourism.
However, Sub-Saharan Africa is the most expensive region to send and receive money, with an average cost of just under 8% of the transfer amount.
CBDCs, like eNaira, could make sending money easier, faster, and cheaper by shortening payment chains and creating more competition between service providers. According to the International Monetary Fund (IMF), faster authorization of cross-border payments would help boost trade within the region and with the rest of the world.
A consultant, Dr. Aminu Bizi, believes that eNiara can increase the benefits Nigeria derives from the African Continental Free Trade Area (AfCFTA).
The Atlantic Council noted that CBDCs, such as eNaira, can improve the transparency of money flows. Cash is essentially untraceable, which helps facilitate crime. eNaira can help the government and its agencies easily track the flow of money in society. For example, with eNaira, it will be difficult for a retailer to collect money for fuel subsidies and divert it for luxury overseas.
“eNaira is account-based and transactions are in principle fully traceable, unlike token-based crypto asset transactions.
“Once eNaira becomes more widespread and integrated into the economy, it can bring greater transparency to informal payments and strengthen the tax base. Informal and formal businesses can also benefit if adoption of eNaira improves consumption through greater financial inclusion,” noted the IMF in one of its reports on CBDCs.
Global attention
The more than 13-month success of eNiara has made Nigeria an educational hub for knowledge acquisition on central CBDC, as CBN has organized and conducted several knowledge sharing sessions for international financial institutions, including the IMF, the World Bank Group, as well as Central Africa. banks, such as the Bank of Uganda and the Reserve Bank of Zimbabwe.
CBN Governor, Emefiele, during the first anniversary of eNaira noted that with many requests from various institutions to participate in the knowledge sharing session; and with the aim of institutionalizing the progress made in the implementation of the CBDC, as well as the trends, size and regulatory challenges of digital financial assets and innovations, a digital finance program had been developed to ensure the sharing knowledge that ensures a safe, efficient and reliable environment. financial system and inclusion, while creating the climate to project the bank’s success in digital currency development and implementation.
“The Digital Finance Program is poised to be a hub for knowledge generation on digital assets in Africa, skill building in Fintech, Blockchain technology, Decentralized Finance (DeFi), digital currencies of Central Bank (CBDC), Financial Innovation, Digital Financial Literacy, RegTech and Risk among others, limiting the vulnerability of the financial system to cyberattacks and fraud,” he proudly stated.
He added that apex bank’s research department produced a compendium of findings, comprising 38 papers bordering core digital currencies and FinTechs with respect to financial stability, monetary policy implementation and effectiveness. , cross-border payments and remittances, and regulation. and monitoring. He said the papers provided theoretical and empirical insight into the likely impact CBDCs and FinTechs would have on the Nigerian economy, and alleged risks could be mitigated.
Central banks in Africa and around the world are looking to learn from Nigeria’s eNaira.
Challenges
The introduction of eNaira was not without difficulties. However, the risks, which forced some countries to suspend the introduction of digital currency, have been successfully addressed in Nigeria.
However, to date, less than 1% of the Nigerian population uses eNaira despite the fact that crypto adoption is high in the country. The bank must critically examine why younger generations are not embracing it as a store of value.
The apex bank should leverage the robust collaborative environment of the payments and digital financial services ecosystem by engaging super agents, Fintechs, Association of Licensed Mobile Payment Operators (ALMPO), Association of Licensed Telecoms Operators of Nigeria (ALTON ), among others, to drive greater adoption, especially in underserved and unbanked segments of the population.
“The CBN recognizes the daunting task ahead. We therefore call on all relevant stakeholders including financial institutions, NIBSS, FinTech groups, telecom operators and merchants to collaborate, innovate, deepen and improve the value of eNaira for Nigerians and Nigeria.
“The bank hopes that eNaira will drive the digital economy agenda and foster a more prosperous Nigeria,” Emefiele said.
However, a positive sign is that those who have adopted eNaira are active users, according to a senior director of the Atlantic Council Center for Geoeconomics, Josh Lipsky, quoted by Bloomberg. This is the opposite of China, where millions of people opened wallets during a CBDC pilot phase, but with very little activity for the average user, he said.
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