Digital payment users anxious to see the Central Bank of Nigeria Digital Currency, codenamed, eNaira, take off were excited at its launch in Abuja last week. Like other Central Bank Digital Currencies (CBDCs), the eNaira was created to serve as a medium of exchange and store of value for consumers and businesses. Its addition into the e-payment space is expected expand Nigeria’s payment options, boost financial inclusion, reduce the cost of processing cash and enable transparent welfare payments to eligible citizens. COLLINS NWEZE writes on the eNaira, its impact of e-payment system and wealth creation for the people.
Moshood Abdulrasheed, a civil servant based in Lagos, was preparing for his yearly leave when he got a WhatsApp message reminding him to pay his monthly DSTv subscriptions.
He had two options. First was to pay through mobile banking app, which he was used to. The alternative was to download and pay through the newly-launched eNaira speed wallet that is fast gaining attention in the e-payment industry.
Abdulrasheed went for the eNaira speed wallet option and the transaction was carried out successfully.
The eNaira speed wallet applications recorded over 100,000 downloads from the Google Play Store in 24 hours after the digital currency was inaugurated. Aside from the Google Play Store, the wallet can also be downloaded from the Apple Store.
The Central Bank of Nigeria (CBN) last Monday raised the innovation bar with the launch of the Central Bank Digital Currency (CBDC), known as the eNaira.
Like other CBDCs, the eNaira is essentially the digital equivalent of the physical naira stored in an electronic wallet. Similar to paper naira bills, the eNaira is issued and backed by the CBN with full legal tender status and is non-interest yielding.
The CBDCs, in broad terms, are digital innovations that will fundamentally revolutionise the financial sector. The adoption of CBDCs have benefits and implications for monetary authorities, commercial banks and the ultimate end-users.
The development and implementation of safe, reliable and efficient payment systems is one of the crucial roles played by the CBN given that safe, reliable and efficient payment systems help reduce poverty, boost shared prosperity, expand financial inclusion, foster development and support financial system stability.
The eNaira was unveiled by President Muhammadu Buhari at an event attended by top government functionaries at the State House, Abuja.
Buhari projected that the eNaira and its underlying blockchain technology could increase the nation’s Gross Domestic Product by $29 billion over the next decade.
He said the e-currency would 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.
According to him, the eNaira will help move many more people and businesses from the informal into the formal sector, thereby increasing the country’s tax base.
He said: “In recent times, the use of physical cash in conducting business and making payments has been on the decline. This trend has been exacerbated by the onset of the COVID-19 pandemic and the resurgence of a new digital economy.
“Alongside these developments, businesses, households, and other economic agents have sought for new means of making payments in the new circumstances.”
Buhari lauded the CBN for the creation of the eNaira.
The president said CBN’s reputation as a leading innovator, “in the form of money they produce, and in the payment services they deploy for efficient transactions,” inspired him to approve eNaira.
He noted that Nigeria’s apex bank had invested heavily in creating a payment system that was ranked in the top 10 in the world and, certainly, the best in Africa.
Buhari explained: “This payment system now provides high-value and time-critical payment services to financial institutions, and, ultimately, serves as the backbone for every electronic payment in Nigeria.”
For the CBN Governor, Godwin Emefiele, the eNaira presents great opportunity for Nigeria’s businesses and economy to leapfrog to greater heights.
He announced the theme of the eNaira as: “Same Naira, more possibilities” even as the CBN had appointment of Bitt Inc as technical partner in driving the scheme.
Emefiele listed the benefits of the eNaira to include increased cross-border trade, accelerated financial inclusion, cheaper and faster remittance inflows, easier targeted social interventions, as well as improvements in monetary policy effectiveness, payment systems efficiency, and tax collection.
He said the issue of security was taken very seriously in creating the eNaira system, which will be treated as a National Critical Infrastructure and subjected to comprehensive security checks.
Bitt Inc is a leader in the Central Bank Digital Currency industry, with subject matter experts at the intersection of technology and policy.
The company deployed its flagship product in regulated, collaborative, multi-stakeholder environments, including a live CBDC in four Caribbean countries, and digital currency deployments in Barbados and Latin America.
Bitt’s Chief Executive Officer, Brian Popelka, said: “Central Bank Digital Currencies are truly transforming the way that financial transactions are conducted around the world. This change brings significant benefits especially to emerging economies.”
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Roles of banks in eNaira implementation
The CBN guidelines for the eNaira showed that banks are expected to market and promote its adoption as a digital version of cash to existing and potential customers in support of financial inclusion objective of the CBN.
According to the guidelines, banks are also permitted to invite their customers to register for the eNaira. With pre-generated codes, the banks can send invitation codes for on-boarding to a specific list of selected customers. On-boarding will be done for customers who have a code assigned by their banks. The banks have already validated and verified these customers.
CBN Director, Corporate Communications, Osita Nwanisobi, said the launch of the eNaira is a culmination of several years of research by the CBN in advancing the boundaries of payments system to make financial transactions easier and seamless for every strata of the society.
“The eNaira, therefore, marks a major step forward in the evolution of money and the CBN is committed to ensuring that the eNaira, like the physical Naira, is accessible by everyone,” he said.
Nwanisobi explained that given that the eNaira is a journey which will continue with a series of further modifications, capabilities and enhancements to the platforms.
“The CBN will continue to work with relevant partners to ensure a seamless process that will benefit every user, particularly those in the rural areas and the unbanked population. Since the eNaira is a new product, and amongst the first CBDCs in the world, we have put a structure to promptly address any issue that might arise from the pilot implementation of the eNaira,” he stated.
Head Equity Research, FBNQuest, Tunde Abidoye explained that for end-users, the eNaira’s (and other CBDCs’) potential benefits have been well-publicized, including increased financial inclusion, ease of diaspora remittances and cross-border payments, and lower payment processing costs, among others.
He added that another less cited benefit for individuals is that CBDCs such as the eNaira are not at risk when bank transactions fail since they are a direct liability of the central bank and not the commercial banks.
“Individuals and businesses may find the elimination of this risk appealing. The eNaira provides the Nigerian monetary authority with a new and more effective means of monetary policy transmission. Banks and other financial institutions will be used to distribute the eNaira to individuals and businesses,” he said.
Abidoye said the CBN issues the currency directly, operates the digital wallet, and keeps a central log of all transactions.
“The Central Bank’s capacity to engage end-users directly broadens its powers and reach. For example, the CBN will be able to inject cash directly into the accounts of recipients of its intervention programs without having to go through commercial banks,” he stated.
Understanding eNaira dynamics
Globally, there has been interest surrounding CBDCs among central banks, governments and the private sector. The CBN has been researching CBDCs since 2017. The concept primarily originated on the back of the popularity of cryptocurrencies like Bitcoin, Ethereum, among others.
It has also gained more traction following the onset of the COVID-19 pandemic and a global need to distribute as well as efficiently track economic stimulus funding, prevent illicit activity and illegal transactions. As such, the eNaira aims to bring the best of both worlds—the convenience and security of digital cryptocurrencies alongside the traditional banking system’s regulations.
In an emailed note to investors, Head of Research at Coronation Merchant Bank, Guy Czartoryski, explained that to use the eNaira to transact, users need to download the speed wallet, validate their account on the wallet by using either their phone number, national identity number (NIN) or bank verification number (BVN). In addition, users will be able to transfer money through peer-to-peer (P2P) transactions from their ewallets to other wallet holders and person-to- merchant/business.
“The structure of the eNaira is similar to a commercial bank account. However, it is non-interest bearing. Excluding executing and managing digital currency tokens, the CBN would be able to gather, analyse and store data on eNaira transactions. The role of deposit money banks would be to take responsibility for conducting Know Your Customer and Anti-money Laundering and Combating the Financing of Terrorism and proliferation (AML/CFT) compliance compatibility on merchant eNaira wallets as well as monitoring illicit activity,” he said.
For developing countries, a significant portion of the population remains unbanked. A CBDC such as the eNaira can assist with boosting financial inclusion across the economy given that unbanked nationals often cite distance and transportation costs to banks as a major hindrance to owning a bank account.
He said: “Remittances also represent one of the most compelling usages for digital currencies by reducing the number of intermediaries, cost, opacity, and time required for cross-border payments. The eNaira could also eliminate some transaction costs, augment expediency, and offer seamless payment services.
“However, unlike most cryptocurrencies, the centralised nature of the eNaira means that the CBN would have oversight on all eNaira accounts. Since 2014, at least 60 central banks have been exploring CBDCs. For instance, the Digital Yuan project in The People’s Republic of China is undergoing trials, with at least Two billion Yuan (approximately $300 million). In addition, countries like the Bahamas, Cambodia, Ukraine, and others have also started CBDC projects.
“By eliminating intermediaries, the eNaira could be a reliable low-cost payment solution for consumers and businesses. In addition, the swiftness and ease of business transfers should bolster economic activities, resulting in a broader positive impact on the economy. Furthermore, the eNaira could indirectly assist with expanding the Federal Government’s tax-net.”
Merchants to accept e-Naira
The CBN mandated all merchants and business outlets to accept e-Naira as a viable means of payment.
CBN Director, Payment System Management, Musa Jimoh, said the digital currency is a legal tender equal to the value of the naira and must be accepted as a form of payment.
Jimoh said, “Today, anywhere you present naira to pay, compulsorily it must be accepted because that is our fiat currency. So, the same way naira is accepted that you can’t reject it, is the same way eNaira must be accepted. Anywhere in this country where eNaira is presented, it must be accepted. So, merchants must accept eNaira as a means of payment.”
He disclosed that eNaira wallets could be downloaded on phones, adding that the apex bank bears all liabilities relating to the transactions.
According to Jimoh, the liability of the e-Naira money is directly on CBN which is similar to the cash people hold.
“Remember there was a time in this country when you had to practically beg business outlets, merchants and others to accept POS transactions. But we have come to a point where traders now beg for POS terminals.”
The benefits of eNaira, he said, include saving the cost of printing more notes. “Today the cost of producing the naira and coins is very high. It costs money to print naira in this country. Now, the minting of e-Naira is electronic so it reduces cost,” Jimoh stated.
He added that charges of transferring funds would be lower for those using the eNaira.
On why the CBN chose a foreign firm instead of a Financial Technology company in Nigeria, Jimoh said it had to do with capacity. He said Bitt Inc which will handle the project, had done similar projects for other countries and already had the capacity and experience.
Jimoh added that the company would be registered and managed in part by Nigerians while the technological aspect would be handled by the foreign arm.
Challenges ahead
The CBN disclosed that fake eNaira social media handles have been created by fraudsters.
In a statement, Nwanisobi said criminal and illegal activities of some individuals and a fraudulent twitter handle, @enaira_cbdc purported to belong to the apex bank was created following the formal launch of the eNaira.
He said that the impostor handle and fraudulent persons have been posting messages related to the eNaira with the intent of wooing unsuspecting Nigerians with claims that the Central Bank of Nigeria (CBN), among other falsities, is disbursing the sum of 50 Billion eNaira currency.
“These impostors are bent on defrauding innocent and unsuspecting members of the public through the links attached to their messages for application to obtain eNaira wallets and become beneficiaries of the said 50 billion eNaira currency,” he said.
Continuing, Abidoye raised concerns about personal privacy on on CBDCs, particularly with account/identity of connected ones like the eNaira, in the same way they have been raised on BigTech corporations.
“Another major concern is the amount of authority it grants to the government. The latter motivation has been cited as a driving force behind the Chinese government’s rapid development of its digital currency, the digital Yuan. This is in addition to the threat that Bitcoin’s volatility poses to the China’s economic and financial stability, as well as the dominance of the two largest online financial services payment platforms, Alipay and WeChat, which together account for 94 per cent of China’s online transactions,” he said.
He added that CBDCs such as the eNaira have far reaching potential benefits and implications for all stakeholders. “It has the potential to completely transform the financial system, as well as the roles of the different agents involved in the value chain. Analysts at FBNQuest believe that the potential benefits outweigh the costs if properly implemented,” he stated.
