In a recent meeting with stakeholders, the Nigerian Central Bank (CBN) disclosed its plans to launch Nigeria’s digital currency eNaira, by October 1.
The CBN says after a marathon of research into digital currencies spanning four years since 2017, it’s rolling out e-naira to benefit Nigeria in the areas of “cross-border trade, monetary policy, tax revenue collection, and remittance inflows”.
This comes on the heels of the bank’s earlier announcement in May, to launch e-currency later in the year, right after the apex bank issued a memo in February, that restricted commercial banks from dealing with exchanges and ultimately making crypto trading difficult in Nigeria.
The ironic spin
Earlier, in Feb 2021, Nigeria’s central bank circulated a memo that truncated the association of commercial banks with local crypto exchanges, citing fraud and nefarious activities facilitated by crypto transactions. The ban forced local exchanges to halt activities and made it difficult for users to trade effectively since they could no longer deposit fiats directly from their bank accounts. Traders who risked crypto transactions with their banks after the ban either got blocked or lost access to their fiat accounts. This sent fear spiraling down the Nigerian crypto landscape, but adaptation quickly followed.
While CBN’s prohibition left local crypto exchanges in limbo, foreign exchanges that aren’t bound by Nigeria’s restrictive laws initiated the Peer-2-peer feature so users aren’t discouraged. Although P2P has considerable risks, Nigerians were quick to embrace the alternative such that crypto trading continued in huge volumes despite the ban.
The appeals, debates, and outcries of stakeholders and traders alike, weren’t sufficient to make the government rescind the ban. Three months after that, Nigeria’s CBN Governor told of the bank’s intention to launch a digital currency “soon”. The news wasn’t well received by stakeholders who believed it’s a way the government’s act of prohibiting crypto trading was overreaching but sentiments can only take them so far.
What is eNaira ?
E-Naira is a digital currency that would operate as a wallet. Customers will be able to hold existing funds in their bank account against the wallet. The Giant project ( e-Naira ) team of the Central Bank of Nigeria said that there’ll be two types of eNaira – RETAIL e-Naira and WHOLESALE e-Naira.
Retail is used in the same manner as bank notes to make retail payments: P2P, and D2B While wholesale CBDC is used to enable transactions between financial institutions, central banks, and entities holding accounts with Central banks.
According to CBN, the e-Naira will have great features such as – access, parity of value, acceptability, distribution, and exchange. The benefits of e-Naira to the governments and stakeholders are the potential to reduce cash handling costs by 5-7%, deepen financial inclusion, a reliable mechanism to distribute fiscal stimulus to citizens, reduce tax leakages, etc.
How will the eNaira work?
Unlike bitcoins where anyone can become a miner and record transactions in the Hyperledger Blockchain, the miners of eNaira will be tightly controlled and regulated by the CBN. The CBN will grant licenses to banks and fintech companies to mine digital currency and create wallets for customers, while the Nigeria Inter-bank Settlement System (NIBSS) will most likely be used to settle any disputes that arise.
How to get the eNaira?
According to Nairametrics, The CBN has planned a rollout in a tiered manner; first, it will issue the e-Naira, to financial institutions like banks. Your bank will then retail the e-Naira to you. If your transaction value is less than N50,000 a day, you don’t need a bank account to get the eNaira; you can use a NIN-verified phone number to buy eNaira. If you want to withdraw more than N50,000 but up to the daily limit of N1 million, then you will need a BVN in addition to a NIN-verified phone number. The CBN has very strict ‘Know Your Customers” protocols for this process, the aim is to assure all retailers of the safety and utility of the eNaira.
Central Banks and the race for control
From the onset, digital currency is founded on one notion: decentralised money, a concept many governments of the world are finding it tough to accept and have been attempting to have a level of moderation on crypto operations.
The saying “If you can’t beat them, join them’ is holding true in recent times. Central Banks across the world are joining the mainstream by launching their own digital currencies, called Central Bank Digital Currencies (CBDCs). Nigeria isn’t an outlier when it comes to nationally recognised electronic currencies. The United States, China, and the UK are some of the countries that are currently piloting their Central Bank Digital Currencies. Estonia is among the frontiers when it made a major leap to adopt crypto as a legal tender this year.
We can’t tell what the odds for success will be and adoption by the users, but the hardest part is creating the crypto, implementation is an easy rollout. China has successfully proven that it can roll out its CBDC and soon other countries may follow suit. However, it may take a while for local currencies to catch on, except an enforced implementation induced by the government could bolster adoption and use. The question remains — will the use of CBDC stall the use of decentralised currencies?
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