A boost to cashless Nigeria, as CBN brings digital Naira

The Central Bank of Nigeria (CBN) is set to launch the eNaira on October1st. CHIMA NWOKOJI in this report, takes a closer look at the eNaira and how it will boost cashless policy.

ALL is now set for Nigeria’s electronic naira (e-naira) launch. It is the latest policy by the Central Bank of Nigeria (CBN).

The introduction of digital currency, a digital form of fiat money which will be launched on October 1, 2021 will coincide with Nigeria’s Independence Day celebration.

It has received both punches and accolades, with many accepting it as a sure way of boosting cashless policy.

Cashless policy is an initiative introduced by the CBN to reduce the amount of physical cash in circulation thereby encouraging the use of electronic platforms for settlement or payment for goods and services.

For illustration, James intends to send N100 to an uncle in a remote village without a bank branch. A common practice is to buy mobile phone recharge cards of that value, load them to his phone, and text to his uncle.

James’ uncle can afterwards go to any phone card retailer and discount his N100 mobile phone credit for N95. The mobile retailer can redeem the call credits and pay cash because he trusts the person doing the exchange; however, he cannot tell if the mobile numbers are real.

The eNaira is designed to solve this verification risk by assuring all holders that each eNaira is a valid token. This authenticity is achieved by building the eNaira on the blockchain. Thus instead of buying phone credits, James’ account will be debited for N100, converted to eNaira, and transferred to his uncle. His uncle can spend the funds directly from his phone or transfer and get cash. Every retailer is more likely to accept the eNaira because it can’t be easily faked.

It is different from cryptocurrency, as the digital naira is more or less like fiat money to be issued by the Central Bank and will be pegged to the Naira. This is completely against the principle of crypto, which is not regulated by any authority,

An economist, Wasiu Adekunle, a Research Analyst with the Nigeria Economic Summit Group (NESG) said the e-currency by CBN is not an alternative to cryptocurrency, rather a digital substitute to the Naira, which will only aid the cashless policy of the government


The technology of e-Naira

The e-Naira will be a digit representative of the paper Naira currency issued by the Central Bank of Nigeria. The eNaira will be a “complementary” legal tender in Nigeria, having the same exchange value as the Naira, and maintain a “parity of value” with the Naira. The e-Naira will not earn any interest to holders. It is built on a blockchain open ledger technology. Creating the eNaira on the blockchain means you cannot have a duplicate or fake eNaira. Each eNaira note will be unique.

Experts explain that stable coins are backed by holding an equal equivalent of FIAT money like the US dollar. FIAT means government-issued but usually not backed by any commodity, e.g., gold. The eNaira technically is linked to the FIAT Naira, but the Naira is not stable. To be a stablecoin, the eNaira has to be tied to a currency like the US Dollar or Euro or even the Yuan.

Speaking on the proposed e-Naira, analysts at Coronation Merchant Bank described eNaira is an electronic record or digital token of the naira issued and regulated by the CBN that is expected to be a legal tender for the country with non-interest-bearing status, and a transaction limit for customers.

The bank also listed some of the eNaira benefits to include a reliable low-risk, low-cost payment solution for consumers and businesses. In addition, the swiftness and ease of business transfers can increase economic activities, resulting in a broader impact on the economy.

“However, the eNaira could threaten the ability of banks to collect fees from wire transfers, cheque issuances, and other payment services.” It concluded

Also speaking, Prof. Uche Uwaleke, economist and former finance commissioner in Imo state says the eNaira is a welcome development on the part of the CBN. “I have said this before and I will say it again that the cost of handling cash by commercial banks would reduce as some deposits get converted to digital currency.

The CBN said it will later launch a wallet, which is also known as the Speed Wallet that will have three tiers. The first tier is designated for Nigerians without bank accounts as access will only be gained upon the submission of “a passport photograph, name, place & date of birth, gender, address and phone number.”

Tier-two wallet users on the other hand must “own an account with an existing bank.” Users at this level “can only send and receive $400 [N200,000] daily with a cumulative balance daily of $1,000. (N500,000.)” The minimum requirement for this level is a Bank Verification Number (BVN). The third tier allows transacting daily to the tune of $2,000 with a cumulative balance daily of $10,000. Having a BVN is the minimum requirement.

With over 70 central banks across the world currently considering one Central Bank Digital Currency (CBDC) or the other, only five of them have so far launched theirs. Of those five, four of them were designed and executed by Bitt Inc., the fintech company working with the CBN as technical partner for the launch of its digital Naira.

Speaking at the Chartered Institute of Bankers (CIBN) advocacy dialogue series webinar. CBN’s Deputy Governor, Operations, Mr Folashodun Shonubi, stated that the Central Bank Digital Currency (CBDC) will make it easier for the banking system to comply with existing laws such as anti-money laundering, customer protection against fraud and ensuring the safety and stability of the payment system.

Shonubi explains, “The Central Bank in its implementation has ensured the e-Naira feeds our economy and provides greater value.

“The central bank digital currency offers all the benefits of cash but in digital form. Every single digital currency is an electronic version of the cash, the legal tender. When you make cash payment, settlement is done instantly; digital currencies entail the same promises and even more.

“CBDC offers a safer option from the privately issued cryptocurrency which have been based on the possibility to enable cheaper transactions but have now been used for investment.

“The intention is not to eliminate other forms of payment but to complement the current areas of payment options, thereby ensuring the stability of the payment system in the long run. I expect in the coming days we will see rapid inclusion rates.”


Getting the money

The CBN has planned a rollout in a tiered manner; first, it will issue the e-Naira, to financial institutions like banks. Banks will then retail the e-Naira to customers.

If a transaction value is less than N50,000 a day,  a bank account is not needed to get the eNaira.

Rather, a National Identification Number (NIN) and verified phone number is needed to buy eNaira.

In terms of withdrawal, more than N50,000 can be withdrawn but up to the daily limit of N1 million. After that, a BVN is needed in addition to a NIN verified phone number.

Analysts have said the CBN has very strict ‘ ‘Know Your Customers” protocols for this process as the aim is to assure all retailers of the safety and utility of the eNaira.


The use of eNaira

While introduction of the e-Naira presents another learning curve in the nation’s monetary policy management, there is very little doubt that the apex bank seems poised to make its own, sweet story that would readily resonate with the nation’s business community.

According to the apex bank, it was indeed against this backdrop that Bitt Inc. its technical partner on the project was selected given its leadership position and proven technical competencies in the novel industry.

“Bitt Inc. was key to the development and successful launch of the central bank digital currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021,” the CBN said.

The eNaira has a low-cost advantage when compared to FIAT. The daily transfers between accounts are at no cost to the holder of the account. Bankers have identified lower transaction cost as a massive incentive because traders will pay no fees for withdrawals and deposits to and from their bank account. No transaction fees reduce the cost of commerce while improving safety.

The e-Naira will be expected to bring in the vast majority of the unbanked Nigerians who have no bank account but have a phone into the formal financial economy. With the e-Naira, salary payments and payments for goods and services can be concluded. A plumber can accept payments on his phone, store them in his wallet, and make transactions with any vendor.

The e-Naira is online, just as the BVN and NIN information is also online. Therefore the risk of malicious actors attempting to hack or gain access to the data is very low. The process of minting and burning eNaira tokens by the CBN is expected to be top-notch.

Other experts in the field of financial technology admit that CBDCs may or may not utilise blockchain technology, depending on the frameworks used to drive the assets circulation into the system.


eNaira vs Dollar

If James lives abroad and wants to send $100 to his uncle, his US bank account will be debited and $100 credited to an IMTO, who will buy eNaira from their corresponding Nigerian bank. The $100 is converted to e-Naira instantly at a far lower transfer fee which is a real benefit and a significant advantage the e-Naira will enjoy.

According to experts, the e-Naira will be integrated into the CBN’s forex process, and this is to make it easier to receive remittances to Nigeria. These transfers could be from the CBN crediting e-Naira directly to International Money Transfer Organisation (IMTO).


The e-Naira and ECOWAS

A trader banking with Access Bank in South Africa can settle his import bills from the Gambia using e-Naira. This will be the next level of the rollout. The financial institutions and FINTECH start to build out an ecosystem with eNaira as the base product.This means that the e-Naira can be used by any two parties who can credit a Nigerian banking institution with corresponding currency.


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