Matters arising on eNaira launch

The recent launch of the Central Bank of Nigeria (CBN) Digital Currency (CBDC), otherwise called “eNaira”, by President Muhammadu Buhari, has elicited a lot of interest among the Nigerian populace, particularly economists, bankers and the generality of the financial public. There have been lots of mixed reactions regarding this move by the CBN more so, given that this same CBN outlawed banks and financial institutions from transacting or operating in crypto currencies in February 2021 with the claim that they pose a threat to the financial system. Though crypto currencies are not national currencies and thus not tied to fiat currency, the risks inherent in their use are not totally absent in digital currencies. Many have asked what has changed between February and October of the same year for the monetary authority to develop so much enthusiasm and euphoria in launching the eNaira so soon.

The eNaira, a digital currency which is known to be based on the block chain technology, as indicated, has been designed to complement the physical naira as well as have the same value with it. The eNaira platform, by its design is meant to host eNaira wallets for different stakeholders such as merchants and consumers with the financial institutions providing the link between them and the CBN.

According to the President, the eNaira is expected to enhance the country’s gross domestic product (GDP) by $29 billion in ten years. That’s quite exhilarating. However, this assertion sounds more like a day dream than a realisable goal given that numerous obstacles still confront the operation of the eNaira. How this dream of such a massive increase in the GDP will materialise over the period, is yet to be made clear by the authorities. For now, it appears purely speculative. So many questions surround the effectiveness or otherwise of the eNaira helping in addressing the core issues of national economic development. Hence, not surprisingly, many have seen the launch as purely diversionary. It appears to be aimed at diverting the attention of the undiscerning public away from the core economic problems currently confronting the nation. Inflation is still high amidst falling disposable incomes; the naira is rapidly depreciating against foreign currencies and the incidence of poverty increasing amidst other deteriorating state of other macroeconomic indicators.

The global statistics indicate that even the developed economies are not so keen on the operation of digital currencies in their societies. Plans to have a “digital dollar” in the United States of America have been dubbed as largely disruptive by incumbent players in the financial market and that it not really needed in the U.S. economy. This scepticism spreads across many advanced economies. China, the second largest global economic power which ventured into the scheme, just launched a pilot version of the “digital renminbi” recently; while in Africa, South Africa and Ghana are at the testing stage for the likely operationalisation of a digital currency. The situation is that Nigeria just joined the Bahamas and the Eastern Caribbean Central Bank in being among the first jurisdictions in the world to roll out national digital currencies. If the major global economies with their entire sophisticated technological infrastructure, are taking their time before embarking on this journey into the unknown, why the rush by the Nigerian Central Bank?

The benefits of the eNaira, as outlined by the CBN appear overly optimistic and speculative. Issues such as improving monetary policy effectiveness, improving financial inclusion, promoting a more efficient payment system as well as enhancing the capacity of government to deploy targeted social interventions and the boosting of remittances are considered as some of the notable benefits.

However, a lot of questions arise on these. First, how does it significantly facilitate payments for goods and services different from the current situation? Many consumers and producers carrying out various transactions have been operating with numerous payment options ranging from cash to the use of Point Of Sale (POS) where customers execute the payment for goods or services and where sales taxes may become payable. Other payment modes include bank transfers and other internet-enabled options including the Unstructured Supplementary Service Data (USSD) which allows users without a smart phone or data/internet connection to use mobile banking through the use of specified codes. Over time, these have facilitated mobile banking in the country and have been used for fund transfers, checking account balances and generating bank statement, among others. These options have not been fully explored in facilitating the payment system in the country.

So, what major difference does the new eNaira bring in the development of the country’s financial system particularly when the issues of cyber security is a recurring challenge even in advanced societies with sophisticated technological infrastructure? Does the average Nigerian need this new innovation in the enhancement of his or her economic well being when his primary focus is eking out a livelihood for himself and his household? At best, this new innovation may be a thing for the future such that time would be taken to strengthen its operation in such a way as to guarantee its safety and dependability. These scepticisms about digital currencies may not go away in a hurry. They exist even in the advanced economies. How can Nigeria with poor technological capabilities or infrastructure, overcome its technological challenges as well as address the scepticism? These are issues the CBN should focus on.

The launch appears to be largely diversionary. The revamping of the economy should be the focus of the monetary and fiscal authorities. That would be what will gladden the heart of the average Nigerian and not the launch of a digital currency. Following from a popular parlance in the country, “how does this affect the price of fish in the market?” The current payment system, though fraught with its challenges can still power the functioning of the Nigerian economy. Improvements in its functioning as well as a gradual implementation of the eNaira plan can go hand in hand.