September 7, 2021/Coronation Research

In a recent press statement, the Central Bank of Nigeria (CBN) stated its plans to  launch its Central Bank Digital Currency (CBDC) pilot scheme called the eNaira  on 1 October 2021 with Bitt Inc, a financial technology company that utilises  blockchain and distributed ledger technology to facilitate secure peer–to–peer  transactions, as a technical partner.

The eNaira is an electronic record or digital token of the naira issued and regulated  by the CBN. It is expected to be a legal tender for the country and have a non– interest–bearing status, as well as a transaction limit for customers.

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.

We understand 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 KYC and AML/CFT compliance compatibility on merchant eNaira  wallets as well as monitoring illicit activity.

For developing countries, Nigeria inclusive, 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.

eNaira– Yay or Nay?

Another advantage of the eNaira is the potential for simplifying monetary policy implementation by making it easier to channel  money. 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 c.2bn Yuan (approximately USD300m). 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 FGN’s tax–net.

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