Emeka Okoroanyanwu and Babajide Okeowo
Barring any last minute’s changes, Nigeria, will on October 1, 2021 officially launch her digitised money, Central Bank Digital Currency (CBDC), popularly called e-Naira. Here, we bring to you all you need to know about the innovation and how it will affect your financial lifestyle.
Even as the debate on the legitimacy and safety of cryptocurrencies rages, the Central Bank of Nigeria (CBN) in June 2021 announced plans to launch a digital currency dubbed the ‘e-Naira’ by October 1, 2021 thereby joining 81other countries strongly considering digital currencies.
According to the Director, Information and Technology, CBN, Rakitya Muhammed, the adoption of digital currency would boost cross-border trade and enable the apex bank to formulate better macroeconomic policies.
“If people adopt more of the usage of e-Naira, then we will be able to have more data to formulate better macroeconomic policies.
“And when countries come on board and create their own digital currencies then we will be able to have a faster exchange of currencies and therefore we might be able to boost cross-border trade at a much lower cost.
“Of course, payment efficiency, even though we know that Nigeria has one of the best payment systems in the world, we will still be able to improve on that.
“We believe that e-Naira will be a catalyst for the digital economy because the people who are outside the formal banking sector will be integrated” she said at the Third Quarter Industry Forum of the Committee of E-business Industry Heads, CeBIH held in Abuja on Wednesday, September 22, 2021.
How e-Naira Works
Speaking on how the innovation would work, the apex bank said it would in the interim issue a three-tier consumer “speed wallet” system before banks and other licensed operators can provide their own wallets for the e-Naira.
The tier 1 wallet is open to anyone without a bank account. It also comes with a transfer limit of ₦50,000 and a cumulative balance of ₦300,000 fixed daily. The minimum requirement to open this wallet is a National Identity Number (NIN).
For tier 2 wallets users, an existing bank account with a linked Bank Verification Number (BVN) is the minimum requirement for this level. Users are restricted to sending and receiving ₦200,000 daily and having a balance of ₦500,000.
Tier 3 wallet holders can transact up to ₦1,000,000 daily with the cumulative balance set at ₦5,000,000. At least a BVN is needed to get this wallet category.
Transaction limits on merchant-level wallets are also set at ₦1,000,000 per day, though there are no limits to how much users can have in their accounts.
The e-Naira also has a non-interest-bearing CBDC status and in addition, there won’t be charges on merchant services, user-to-merchant, and peer-to-peer wallet transactions.
The zero charges also apply when users send money from their wallets to bank accounts and make withdrawals at agent or merchant locations.
After the launch, Nigerian banks can invite all their customers to register for the e-Naira, with necessary validation and verification processes.
The banking regulator notes that the e-naira system, being a National Critical Infrastructure, will be subject to comprehensive security checks.
According to the CBN, Nigerian banks are to market and promote the adoption of e-Naira as a digital version of cash to existing and potential customers, in support of the financial inclusion objective of the CBN.
Benefits of e-naira
The apex bank, while announcing the planned launch, highlighted the numerous benefits of the e-Naira.
The e-Naira, according to the apex bank, would be a Central Bank Digital Currency (CBDC), meaning that while it is regulated by the CBN, it is a token that would only exist in digital and electronic form.
Similarly, the e-Naira would also be eligible for local and international transfers with little to no time lag and cheaper transaction fees than physical currencies. Also, it would allow you to transfer existing funds in your bank to your digital currency account.
With the e-Naira, Nigerians can engage in easier cross-border trade, as well as enjoy a cheaper and faster inflow of remittances. Also, a digital currency would provide more financial opportunities for Nigerians as they would be able to create new business opportunities and financial products and services.
According to the CBN, another perk of the e-Naira is a reduction in the cost of operations and cash management. It would also leave a clearer footprint of digital transactions, making it easier for financial institutions to track transactions.
The digital currency would be implemented through a two-tiered model which would enable a structure that leaves room for public-private partnership. Just like the physical currency, the CBN will design the e-Naira but disseminate it through regulated financial institutions, which would then provide digital cash to individuals and businesses.
While all cryptocurrencies are also digital currencies, it is important to note that not all digital currencies are cryptocurrencies. The e-Naira would be regulated by the Central Bank of Nigeria, but cryptocurrencies are not regulated by any government.
The CBN also said the e-Naira will deepen financial inclusion and propel a cashless policy as it is targeted at both the banked and unbanked segments of the population. The CBN views the e-Naira as an opportunity to further its goal of achieving its National Financial Inclusion Strategy target of 80.0 per cent, which it was unable to meet in 2020.
Going by the most recent survey conducted by Enhancing Financial Innovation & Access (EFInA), 36.0 per cent of Nigerian adults remained financially excluded by the end of 2020.
EFinA also observed that 81.0 per cent of Nigerians owned a mobile phone (including smart phones) as of 2020, compared with 69.0 per cent in 2018, with the share of active digital financial services users expanding to 28.0 per cent from 16.0 per cent. It noted, however, the fact that the e-Naira does not necessitate the usage of a bank account indicates potential to serve underserved individuals.
According to EFinA, attitudes and perceptions, including a strong preference for physical cash, account for 34.0 per cent of reasons for not having bank accounts amongst Nigerians, saying there is little evidence that these behaviors will change with the introduction of the e-Naira.
Other barriers, it observed include small and irregular income (underemployment) and unemployment.
Ahead of launch, alarm bells resound
While Nigerians eagerly await the launch of the e-Naira, many financial experts are still skeptical about it.
Their major grouse is that the e-Naira is primarily transactional and does not appreciate or attract interest unlike other digital currencies like bitcoin, adding that the average Nigerian may not be interested in it.
According to Adeyemi Atanda, Chairman, CeBIH, there must be an attraction for people to keep money in naira, but the e-naira has no such attraction.
“When you hear e-Naira, think transactional not investments. That is where a lot of people are mixing it up, you can’t compare it with crypto. Crypto is not primarily transactional, it is investments primarily. e-naira is primarily transactional,” he said.
Atanda also feared that banks would lose some of the liabilities (deposits).
“The liabilities that we sit on today will be moved from naira where we can use it easily to digital currency, so we lose liability, but, again, it is a function of how creative we get as bankers” he disclosed.
The chairman, however, stressed that the e-Naira, however, has more benefits than negatives. He argued that the platform can bring a lot of cash circulating outside the banking sector, which is about 85 percent, into the financial sector.
On his part, Chimezie Chuta, coordinator, block chain Nigeria User Group stressed that the e-Naira will not solve the problem of financial inclusion in the country.
He opined that CBN introduced the digital currency to address the encroachment of private e-currencies, but said the solution is weak as the e-Naira does not address the key drivers of private e-currencies.
“I personally don’t think it will drive financial inclusion; it won’t drive that. You need to have money, a source of income to have a bank account. An average Nigerian will not buy into e-Naira because of banking services”, he said.
Chuta however said the e-Naira will save the huge cost on printing, management and distribution of the naira.
Similarly, Dr. Omobola Adu, a Research Analyst at GDL is also skeptical about the innovation, he does not think the introduction of a digital currency would strengthen the value of the Naira.
“The eNaira is just a digital representation of the Naira itself, so it doesn’t strengthen the value of our currency.
If I say 5 e-Naira is N5,000 today, what will make 1 e-Naira be N5,000 tomorrow will be the attractiveness of our currency and what we produce (existing factors). The existing factors (demand and supply) plus production levels will continue to be the major factors driving the value of the Naira,” he opined.
He, however, has this to say: “I think the e-Naira is a good initiative in the sense that in the next couple of years, the global economy should be moving to digital currencies. We’ve heard announcements by various countries on plans to start their digital currency, so we can say that the CBN is moving in the right direction.”
