The Central Bank of Nigeria (CBN) has perfected plans to launch the pilot scheme of its Central Bank Digital Currency (CBDC), code-named e-Naira on October 1, same day the country celebrates her Independence.
In a presentation to banks, Rakiya Mohammed, Director, IT Department at the CBN gave insight into how the e-Naira would operate, noting that it will be a legal tender for the entire country and have non-interest-bearing CBDC status, a transaction limit for customers and a value-based transaction limit.
The apex bank also said it will issue its own wallet called the ‘Speed wallet,’ but the wallet will not compete with existing banks, as it expects banks and other innovators to create ‘wallets.’
The project name is tagged Project “GIANT” and will run on blockchain platform, Hyperledger Fabric Blockchain.
In the presentation, CBN stated that for Nigerians to use the e-Naira for transactions, users will have to download the speed wallet, then validate their account on the wallet by using either their phone number, National Identity Number (NIN) or Bank Verification Number (BVN).
Once this is done, the wallet will then be functional. According to CBN, users will be able to send money using Peer-to-Peer (P2P) transactions through their wallets to other wallet holders, Person-to-Marchant/Business where e-Naira users can pay for items to merchants who have the e-Naira wallet and vice versa.
No doubt, the e-Naira will reduce the need to print paper money thereby save money for the country. As more people adopt the CBDC as a means of payment, the need for paper currency will drop and the government can spend less on printing since they can easily issue new coins or e-Naira through the Hyper ledger Fabric Blockchain. Data from the Central Bank of Nigeria‘s annual report, which was compiled by the currency operations department, shows the nation spent a total of ₦307 billion on printing banknotes between 2014 and 2019.
Moreover, cases of financial fraud can easily be tracked as government will be able to monitor the flow of money in and around the country as it provides transparency and is difficult to counterfeit. Remittances to government will also be easier. But are these issues enough to justify the new digital currency? How does it strengthen the banking industry? Does the e-Naira solve the problem of financial inclusion which is one of the key mandates of the Central Bank?
The Nigerian banking system is one of the most sophisticated in the world and the banking system continues to advance its technological strength. In Nigeria, domestic intra bank transactions are done within seconds and at most minutes, a feat the United States was only able to achieve in 2017 through the creation of Zelle.
The average Nigerian transaction involves the use of four payment methods, and they are all instant; Point of Sale (POS) machine, Online Bank Transfer, USSD Code enabled transfers and fiat currency. The average Nigerian retailer accepts at least one of these payment methods when a transaction is about to take place. If the intent of the government is to reduce the use of paper money, the POS systems and online transfers can be encouraged through targeted campaigns, just like the cashless policy campaign when Sanusi Lamido Sanusi held sway in 2012.
Financial inclusion is defined as the access to financial services that are available to the adult population in any given economy. It is not a gainsaying that a major component of the e-Naira is the need for smartphones. One can only have access to a digital wallet with use of a smart phone. This poses a problem because according to Pew Research Center, only 32% in Nigeria use smartphones. Nigeria’s population is projected at over 200 million people and this represents approximately 64 million people.
Another report from the infometrics states that Nigeria has roughly 170 million mobile phone users based on subscriptions but only about 25 and 40 million users have smartphones which represent only 10-20% of the population.
Hence the proposed e-Naira limits the number of people within the country that can have access to a digital wallet. Moreover, data from the Nigerian Inter-Bank Settlement System Plc (NIBSS) reveals that Nigeria has 47 million Bank Verification Numbers (BVN) which means that more than half of the country’s adult citizens are still without verified bank accounts.
Nigeria is faced with power supply and internet connectivity issues. As a matter of emphasis, Nigeria has one of the slowest internet and worst networks in the world. So we need steady power supply and fast internet connections for the implementation of the proposed e-naira to be as vigorous as it is intended to be.
Furthermore, there is the issue of cyber security. A recently released report showed that cybercrime will cost the world $10.5 trillion annually by 2025 in damages. In 2020 alone, the global loss from hacking and cybercrimes increased by nearly $ 1 trillion.
For West Africa’s most populous nation not to add to these indices when the e-Naira is implemented, there is need to invest in cyber security.
As already stated, one could make a case that the use of CBDC helps to better monitor illicit online transactions. In reality, a Nigerian CBDC will be too costly to implement and may be rendered useless quickly when compared to other systems that exist. The banking system is sophisticated enough to handle transactions as a means of payment. The central bank is better off spending its time and resources on pressing issues like how to combat double-digit inflation.
On a final note, the CBN Governor, Godwin Emefiele would be remembered for being forward-looking, as it would also scrutinize the implementation of this ‘giant’ project to decide if it was a success or if it ended up as many other white elephants projects.
