In Nigeria, a project is underway to bring forth the first digital currency for the African country. The central bank digital currency (CBDC) features a centralized distributed ledger technology (DLT). This technology allows the central bank to issue and control the monetary supply in a manner like the current paper money regime.
What is eNaira?
The Central Bank of Nigeria (CBN) launched the official website of its digital currency, the eNaira, in September 2021. The currency is set to have an app (The Speed Wallet) which is downloadable on the Google Play Store and Apple Store.
eNaira is a digital currency to be issued by the Nigerian government with the same value as physical naira (i.e., physical naira notes). It is to be purchased by the public through financial institutions and transferred into e-wallets maintained by customers.
Digital currency intends to help.
The promises of digital currency start with economic growth through easier access to capital and financial services. Other promises of eNaira in particular include:
• Increased speed for remittance of payments
• Monitoring of transactions to prevent fraud
• Faster and more equitable distribution of cash assistance
• Inclusion of unbanked Nigerians with phones through the ability to receive salary payments as well as payments for goods and services
• Option as a new trade mechanism with less expensive and safe transactions
• Better security with its unique identity and security structure
• Improvement for revenue collection by reducing the costs from handling cash
• Simplification for monetary policy implementation through ease of channeling money
• Promotes cashless policies among merchants while helping mitigate the risk of carrying cash
How can digital currency contribute to a resilient digital ecosystem?
It is intended to provide stability to the current digital ecosystem as it will be regulated and controlled by the central bank.
There are different players that determine the value of a currency; however, with the capitalization of the blockchain technology, digital currency can help maintain the value of a country’s currency as it will be easy to convert from one currency to another within the same ecosystem, thereby helping eliminate black market effects.
What are the roles of the regulators and policymakers?
1. Issue directives and review Guidelines on eNaira periodically as may be required.
2. Determine the technical, regulatory and operational standards for the eNaira.
3. Provision and review of KYC and AML/CFT guidelines to mitigate fraud and money laundering.
4. To provide guidelines on the charges for eNaira transactions.
5. Provision of guidelines for dispute resolution on eNaira-related issues.
How can e-currencies help in a global crisis such as the case of the Covid-19 pandemic?
The minting, issuance and distribution of paper money in Nigeria was highly dependent on the physical presence of people, imports and exports, etc. However, the Covid-19 pandemic brought a disruption to the economy globally and this had a direct impact on the value and availability of currencies. This led to a hike in the prices of goods and services.
The e-currency in its form will not be affected by force majeure because it doesn’t require a physical presence in its production and distribution, thereby providing to reasonable extent stability to the economy and value of a currency in times of crisis and pandemic.
Also, in providing relief in pandemics and crises, e-currency provides a direct government-to-people financial relationship effective in the transferability of relief funds. Furthermore, NGOs and other social welfare schemes can extend financial support to vulnerable citizens leveraging the e-currency platform.
The eNaira is poised to change the landscape of the financial sector due to its unique payment acceptance capabilities. However, it is still a work in progress and the impact would not be immediate. It has the potential to massively grow financial inclusion and also ease diaspora remittances, which will be beneficial to many in the payment ecosystem.
The ease of cross-currency conversions is also intended to open up more opportunities for businesses globally as transactions can be facilitated without some of the current bottlenecks
In conclusion, the eNaira is not meant to eliminate the paper money but rather complement it while helping drive the financial inclusion of both the unbanked and the underbanked of the economy.
Read full story on The Financial Times