BY MOYINOLUWA BAMIDELE-LUCAS
The Central Bank of Nigeria has slated October 1, 2021, as the launch date of its digital currency dubbed “e-Naira”.
It has also formally put the deposit money banks and the public on notice concerning the eNaira project.
In a presentation detailing the design and operational modules of the e-Naira, issued recently, the apex bank stated that the e-Naira would be a legal tender for the country, which would have non-interest-bearing Central Bank Digital Currency status, a transaction limit for customers, and a value-based transaction limit.
Among the differences between the virtual currencies include the fact that cryptocurrencies are decentralised, while CBDCs such as the e-Naira are centralized. CBDCs also don’t offer anonymity unlike cryptocurrencies which could portend “risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities.”
With CBDCs, the central banks are in control and would know exactly who holds what and empower the apex banks to track movements of the currencies.
The Point’s investigation reveals that the CBDC is credited with the potential of reducing cash handling costs by between 5 and 7 percent, in addition to deepening digital financial inclusion as well as promoting development of e-commerce.
Analysts also averred that “It would promote formal cross-border payments for efficiency, convenience and affordability.”
Other areas of possible impact include, digitization of cash and the development of e-commerce, as well as deepen digital financial inclusion.
The CBN is also minded to use the new legal tender to improve tax collection efficiencies and global trade or remittances.
The apex bank stated that “the e-Naira would reduce tax leakages due to tax evasion and illicit money flows. It is also expected that the currency will improve cross-border trade, enhance financial inclusion, remittance improvement, and others.
While these are the supposed benefit of the E-Naira, Nigerians have their reservations because of the popular trend of never doing things the right way, with a lot of people not sure what to expect.
Some of the concerns range from how cross border payments will work, to how e-Naira holders’ privacy would be ensured.
Some are contending that they feel this might be a method by the government could be infringing on the privacy of individuals for their political gain as the e-Naira transactions would be monitored and controlled directly by the government.
A Smartphone would also be needed to be able to own and use the e-Naira. This fact could be a disadvantage to some Nigerians as not everyone has an access to Smartphone or are technologically inclined.
There is also a question if the e-Naira would affect the running of commercial banks, since individual citizens could hold their CBDC e-Naira savings on account with the CBN directly.
In a bid to avoid conflict of interest, the CBN has clarified that after the launch of the e-Naira, banks and other licensed operators may provide their own wallets since it does not intend to compete against them and that the wallet provided by them would merely be a stop-gap measure for meeting the deadline.
The CBN also stated that it would be the responsibility of banks to promote the e-Naira as an alternative to the cash to their customers.
Omobola Adu, a Research Analyst at GDL, said “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.”
However, he did 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,” he said.
“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.
Dumebi Udegbunam, Fixed Income trader at UBA, hailed the move by the apex bank as a formidable step as the nation navigates into the 4th industrial revolution.
“I think it’s a good step forward to advance the banked population further and also encourage the financial inclusion ideology of the populace. We are entering into the next evolution and that’s the digital evolution and to be forward-thinking at this point in time is critical,” he said.
He postulated that the e-Naira would aid international trade and strengthen the Naira, but backward integration is still needed.
“The elements that affect the volatility of the NGN index are beyond just getting an e-Naira. Will doing this directly affect the flow of Naira in diaspora and aid foreign and bilateral trade? Yes, but we need a strong backward integration to increase our export to give us a favorable balance of payment, which could positively affect the Naira.
“This initiative by the CBN may not directly affect the Naira. Still, it will indirectly positively affect the ease of doing business, especially with the trade, making Nigeria one of the first sub-Sahara Africa countries poised and prepared for digital evolution. To make this more effective, i.e., in terms of strengthening the Naira, there should be ideology sync or goals set by the monetary and fiscal policy to be next exporters and not net importers and also to improve the standard of living with the inflation elements in view as well.”
He also suggested that the internet and cyber connectivity would be the issue in implementing the e-Naira.
“Nigeria is faced with power supply and internet connectivity issues (we have one of the slowest internet and worst networks in the world) for the implementation to be as vigorous as it is intended to be. The sectors directly involved in this should be improved to prevent sub-optimization or counter-productivity of the CBDC e-naira
“Furthermore, there is the issue of cyber security. A recently released report showed that cybercrime will cost the world $10.5 trillion annually by 2025 in damages. In 2020 alone, the global loss from hacking and cybercrimes increased by nearly $ 1 trillion,” he noted.
