eNaira: Watershed in Payment, Economic Landscape

James Emejo writes that the launch of the eNaira marks a watershed in the country’s quest to becoming Africa’s powerhouse in financial payment system and has the potential to catapult its growth prospects as well as provide succour to deposit bank customers who have endured relentless service debits in their accounts

It’s here at last – The much-anticipated Central Bank Digital Currency (CBDC), also known as eNaira was launched on Monday by President Muhammadu Buhari, who proudly stated that Nigeria had “become the first country in Africa, and one of the first in the world to introduce a digital currency to her citizens.”

The president quickly pointed out that the use of physical cash in conducting business and making payments had been on the decline in recent times, strengthened by the onset of the COVID-19 pandemic and the resurgence of a new digital economy.

As a result, Buhari further observed that businesses, households, and other economic agents had sought for new means of making payments in the new circumstances.

Specifically, he said the absence of a swift and effective solution to these requirements, as well as fears that central banks’ actions sometimes lead to hyperinflation, further created the space for non-government entities to establish new forms of private currencies that seemed to have gained popularity and acceptance across the world, including here in Nigeria.

Overwhelming Interest

The president’s observations on the appetite of Nigerians for innovation in the payment platform were corroborated by the Governor of the Central Bank of Nigeria (CBN) who pointed out that since the eNaira platform went live, there had been overwhelming interest and encouraging response from Nigerians and other parties across the world with over 2.5 million daily visits to the website.

According to him, 33 banks are fully integrated and live on the platform while N500 million had been successfully minted by the central bank including N200 million which had been issued to financial institutions.

Emefiele said over 2,000 customers have been onboarded while120 merchants have successfully registered on the eNaira platform.

At a period when majority of bank customers are daily complaining of excessive bank charges on their savings accounts, the eNaira could offer them an escape route to move their physical cash to digital currency form in order to escape further onslaught from banks.

Nevertheless, Emefiele, at the launch said with the growing interest in CBDC around the world, the CBN had commenced extensive study, consultations, identification of use cases and the testing of the CBDC concept in a Sandbox environment as far back as 2017.

He said the objective of the research was to establish a compelling case for the adoption of a digital currency in the country to enable a more prosperous and inclusive economy for all Nigerians.

Following the completion of the preliminary work, he said, the researchers and experts at the CBN were able to clearly establish that a digital currency will drive a more cashless, inclusive, and digital economy as well as complement the gains of previous policy measures and our fast growing payments platforms.

He said CBN decided to implement its own CBDC and to name the digital currency, the eNaira and believes the innovation would make a significant positive difference to Nigeria and Nigerians.

Specifically, Emefiele said the eNaira would support a resilient payment system ecosystem, encouraging rapid financial inclusion, reducing the cost of processing cash, enable direct and transparent welfare intervention to citizens and increase revenue and tax collection.

He said eNaira would also facilitate diaspora remittances, reducing the cost of financial transactions, and improve the efficiency of payments.

Equivalence to Physical Cash

He said, “Therefore, the eNaira is Nigeria’s CBDC and it is the digital equivalent of the physical Naira. As the tagline simply encapsulates, the eNaira is the same Naira with far more possibilities. The eNaira – like the physical Naira – is a legal tender in Nigeria and a liability of the CBN. The eNaira and Naira will have the same value and will always be exchanged at 1 naira to 1 eNaira.”

Emefiele said in a bid to further de-risk the process, the CBN had given careful consideration to the entire payments and financial architecture and has designed the eNaira to complement and strengthen these ecosystems adding that the bank had also implemented secure safeguards and policies to maintain the integrity of the financial system.

Also, in order to stem abuse of the digital currency, CBN boss added that there would be strict adherence to the anti-money laundering and combating the financing of terrorism (AML/CFT) standards in order to preserve the integrity and stability of Nigeria’s payment system.

Emefiele said, “Today, customers who download the eNaira Speed Wallet App will be able to perform the following: Onboard and create their wallet, fund their eNaira wallet from their bank account, transfer eNaira from their wallet to another wallet, and make payment for purchases at registered merchant locations.”
Emefiele said the country had made history with the eNaira launch, pointing out that this would be the first in Africa and one of the earliest around the world.

Safety Guaranteed

Even while some Nigerians had expressed concerns over the safety of the eNaira especially given the fragility of the global cybersecurity space, the apex bank had further assured Nigerians on the safety and reliability of the digital money adding that adequate safeguards had been installed to forestall security breaches.

He told THISDAY, “We would not embark on a project where we have not really dimensioned the risks; you identify risks and you now measure the risks and then we think about how to manage the risks and we have looked at it.

Emefiele said, “There is no need, absolutely no reason for anybody to be afraid of the risk of even hacking your account and the rest of that.

“This morning I set up my account and my account is operating very well. I talked about the BVN; the BVN is one of the best payment systems infrastructure that we have put in place and I can assure you that with all that has been done, you cannot hack into it.

“If somebody hacks into yours, it will be because you were reckless in handling your information but not that the system failed.”

He described the eNaira as an extension of payment system in Nigeria and which would enhance payments outside the country.

He said the innovation would also boost commerce beyond the shores of the country.

He said, “You can make payment for goods and services rendered to somebody who even resides outside the country as long as he is willing to accept Naira.

“We will see eventually that what it does is that your reliance on third currency would be reduced by embracing eNaira and that for me is one area that I am looking forward to how this would help our country.”

This is particularly important as the country prepares to open its borders to other African countries for trade under the African Continental Free Trade Area Agreement (AfCFTA) where currency convertibility remains crucial.

Analysts have however commended the CBN initiative, describing it as a turning point in the country’s payment landscape

Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, described the eNaira as revolutionary.

According to him, “What CBN has done is to position the country to be part of the global digital fintech revolution. This will enhance seamless person-to-person financial transactions and person to company transactions.

“The distortions encountered in international payments currently are reduced or eliminated using the eNaira. It also reduces pressure on paper currency and associated costs of managing cash.”

Ekechukwu however said the CBN should ensure that it encrypt and tighten security perspectives therefrom, to forestall hacking and fraudulent transactions.

Also in separate interview with THISDAY, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, observed that the launch of eNaira would broaden the payment system in the country and enhance regional trade between African countries and Nigeria.

He said, “It would have a positive impact on the economy because it will deepen settlement systems and increase economic activities in the country.”

However, he noted, “The major concern about the eNaira launch will be integration into the existing payment system and how banks will assist in facilitating its usage giving constraints always experienced with network in the banking system.

“The other major concern will be the attendant security in place to guide against any breach of the network.
“I strongly recommend that the CBN aggressively markets the benefit of the eNaira to Nigerians and investors alike and also work out a strong synergy with the banks to ensure its smooth running and success to deliver on it expected impact.”

Implementation

On his part, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said though a positive development for the country, implementation will be key determinant of success.
He said, “I think its a positive move although its implementation will determine its success. Some of the key highlights are easier cross border payments, diaspora remittances etc.

“It may also boost financial inclusion given that bank accounts are not needed to have the digital currency. This will also augur well for intervention funding by government.”

Shelleng, however, said there must be some level of caution especially when it comes to the digital security aspects this may provide an opportunity for unscrupulous elements to take advantage of those less digitally savvy.

He said, “I do see its advantages in terms of public finance. The underlying block chain technology makes transactions safer and easier to trace.”

In his intervention however, Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said there are several reasons why eNaira would be beneficial to Nigeria, adding that this explained why the CBN is pushing for its launch relatively early.

He said, “In the first instance, the whole idea of Project Giant would appear to be the creation a digital currency ecosystem to support digital payments which enhances the safety and efficiency of both wholesale and retail payment systems in the domestic economy.

“By so doing, it increases the avenues for bringing unbanked people into the financial system and enhances the informal sector’s access to a wide array of financial services.”

Uwaleke also pointed out that eNaira could lower the cost of issuing naira notes, as well as the cost of destroying unfit ones stressing that the potential programmability and traceability of eNaira would enhance banking supervision as well as provide a new instrument to better control the money supply and enhance prudential regulation.

He said, “These two features of eNaira could help combat money laundering and illicit financial flows. Also, transfer payments such as the monetary palliatives provided by governments to ease the negative impact of the COVID-19 pandemic would be made faster and easier as eNaira allows for direct deposits into e-wallets.

“Furthermore, it goes without saying that if successfully deployed, the eNaira could lower the hurdles in cross border transactions as well as facilitate remittances against the backdrop of the commencement of the African Continental Free Trade Area.”