September 30, 2021/CSL Research

Earlier this year, the Central Bank of Nigeria (CBN) in one of its circular banned Deposit Money Banks (DMBs) from facilitating all cryptocurrency activities through their platforms. Since then, players have leveraged the use of Peer to Peer (P2P) for settling cryptocurrency trades, a decision that has been successful so far, given that activities have continued unabated in the space. Leveraging the significant adoption of the currency, the CBN intensified efforts at creating a digital currency of its own. According to the Director, Payment System Management Department, Mr Musa Itopa Jimoh, the e-Naira would help achieve among other objectives, the actualization of its cashless policy, financial inclusion, easier remittance of government aids, and faster processing of diaspora remittances. The CBN plans to launch the e-naira on the 1st of October 2021.

As the CBN plans to launch the e-Naira tomorrow, there are many concerns. One of which is how the digital currency could affect the current banking business, especially the retail business of the banking sector. The CBN noted that it does not intend to eliminate banks, but rather enable an improved banking experience for new and existing bank clients.

Despite the clarification, concerns are rife that the e-naira could just be onboarding already financially included Nigerians. As of December 2020, only 51.0% of Nigerians had access to
financial services and many are yet to be onboarded largely due to issues around mobile penetration. Can the e-naira scale this hurdle ?

According to the e-Naira website( https://www.enaira.com/), the e-Naira serves as both a medium of exchange and a store of value, offering better payment prospects in retail transactions when compared to cash payments. The e-Naira has an exclusive operational structure that is both remarkable and nothing like other forms of Central Bank money. The e-Naira will be a digital representation of the paper Naira currency issued by the Central Bank of Nigeria and will have the same exchange value as the Naira. The e-Naira is built on a blockchain open ledger technology which implies that each e-Naira currency will be unique and duplicate proof.

Currently, there is little clarity as to how the adoption of the e-Naira will affect the banks but there are concerns around loss of cheap deposits if bank customers decide to move their funds to an e-Naira wallet which will likely not count as banks’ deposits and cannot be used to earn interest for banks. There are also concerns that Fee and Commission Income of many banks will be adversely affected when customers move funds to their e-Naira wallet and transact from wallet to wallet as fees cannot be earned on such transactions. That said, we expect communication from the CBN to provide clarity on these concerns.