E-Naira: Are we truly ready for digital currency?, by Mujidah Yahaya
NEWS DIGEST – As Nigeria celebrates another year of being independent, there comes with it another phenomenon in the name of indigenous digital currency. As with every celebration, this phenomenon called E-Naira becoming operational on October 1, as planned by Nigeria’s apex bank, CBN, heralding the country’s first experimentation with a digital currency.
The CBN took this initiative early this year, following the banning of cryptocurrency in the country. The ban was greeted with condemnations among many Nigerian users of the digital currency but the apex bank was quick at addressing these disgruntled Nigerians that the E-Naira was being created as an alternative to cryptocurrency due to the rise in digital payment within the country, which coincidentally resulted in lower use of Naira notes.
A CBN Director, Rukiya Mohammed, during a seminar organised by the committee of e-Business in Industry Heads Nigeria, CeBIH, had said that the need for Nigeria’s digital currency arose from the fact that digital payment is rising while cash payment was declining both.
According to her, 85 percent of Central Banks worldwide were considering digital currency and so was CBN, especially in its bid to cope with the global trends.
“Central Bank Digital Currency (CBDC) would be legal tender with one e-Naira equivalent to one Naira which shows fundamental differences between CBDC and cryptocurrencies,” she said.
Based on the foregoing, it could therefore be deduced that there is a clear difference between CBDCs and cryptocurrencies, as the E-Naira provides a platform for the CBN to leverage blockchain technology to maintain a centralised and institutional role over the currency. This provides a clear distinction from Bitcoin, the world’s largest digital currency, and other cryptos which cannot be traced by a country’s central bank, making them difficult to regulate.
Most analysts have argued that in recent years trading of Bitcoin and other virtual currencies had become “widespread, disrupting economic and financial order, giving rise to money laundering, illegal fund-raising, fraud, pyramid schemes and other criminal activities”.
It is, therefore, safe to say the world at large is progressing rapidly in terms of technology and thus this digital currency should not come as a surprise to many. Worldwide, many businesses and organisations would very much prefer their customers not to use cash in making payments. Although cash payment is not yet extinct, its use is becoming lower statistically in comparison to electronic and digital payments.
Before we go further, what exactly is this digital currency called ‘eNaira’? Simply put, eNaira is a digital currency which, like all other digital currencies, is a type of medium of exchange that is purely of electronic format and all payment shall be accounted and transferred using computers and electronic wallets. In contrast, cash payments require the need to have physical banknotes available to carry out transactions. Going by some characteristics of this digital currency, this innovation is solely digital and is only equivalent to physical Naira. Digital currencies can also transfer value.
This ‘eNaira’ has many good sides including allowing users to carry out transactions easily and faster across borders, unlike cash payments. Another significant side to this innovation is that digital currency also cannot be soiled, dirtied as with physical Naira notes which also require physical manufacturing. This technology can also serve as an avenue for easy implementation of monetary and fiscal policies by the Central Bank.
On the other hand, this technology could not go without some disadvantages. Nigeria is classified as a developing country and this is majorly due to the living standards of its citizens. The majority of the country’s population is living below the poverty line, as such, they are not financially inclusive. For this reason, most Nigerians would still stick to the traditional method of making and receiving payments.
Though I strongly believe that CBN’s CBDC will be a game-changer that would provide an alternative payment system and would radically transform the payment landscape, it is necessary for banks and bankers in the country to up their games in being more innovative before they lose their jobs. This is because customers these days would rather demand services at their fingertips which new FINTECH banks are coming up to do. So, commercial banks need to fully support this new digital currency in order to ensure that all citizens are financially inclusive.
Mujidah Adedamola Yahaya is an MSc student of Financial Technology at the University of the West of England – UWE Bristol. She can be reached on: [email protected]