What is eNaira?
eNaira is a new digital version of the Naira released by the central bank in October 2021 to facilitate the digital economy in Nigeria under the watchful eye of the CBN. It is not crypto-currency, it is Naira but it is a digital account maintained in the CBN through your bank.
Who else has digital currency aside from Nigeria?
Most notably China implemented theirs in April 2020, European Central Bank is working on theirs while the US Federal Reserve is starting research on the digital dollar, in fact, 20% of the world countries by population are at different stages of implementing a national digital currency and I think it is commendable that Nigeria is not coming late to this party. I commend the CBN generally because even though they don’t often originate ideas, they are quick to implement global innovations that have been proven by other central banks, and Nigeria today is enjoying one of the most vibrant payment ecosystems in the world.
Is this a good idea?
In short, yes, it is a very good idea because it levels the playing field for new fintech innovations. Your eNaira is backed by the CBN itself rather than your bank, access to such money is centralized by the CBN, and that levels the playing field. The CBN is doing this probably to get ahead of the curve of payment evolution which can be uncontrollable as the volatility of bitcoin and other forms of digital money have shown recently.
What is the difference?
Today the banking system regulated by the CBN is old and based on very old ideas about money. Banks take deposits from the public and put up an array of assurances to ensure liquidity and access to the money they’ve taken. It’s a very big and complicated system that also depends on some global giants for easy access to money. When you deposit money in Nigeria and want to send it electronically which is increasing by the day, you have to use a card issued by a bank under a card scheme like VISA, MasterCard, or Verve. These networks are controlling electronic access to money in bank accounts around the world and enable you to spend your money anywhere anytime. You can deposit Naira in cash in Lagos and spend GBP in London or USD in New York on any currency online. This is made possible by the card schemes. Within Nigeria, you can use Verve but it may not work in all countries because that form of payment has not yet achieved global acceptance. It is in this area of digital access that eNaira plays, it bypasses your bank when it is time to access your money, you deal directly with the CBN behind the scenes. Your money is stored in CBN digitally and so can be more easily accessed. It won’t matter anymore which bank you deposited through, access is simple and even throughout Nigeria.
Why is that good?
The main benefit of eNaira is the innovation it will unleash. It is not immediately apparent upfront but once you have a national digital currency with the needed infrastructure, payment service providers have universal access through CBN to provide new innovations on payment technologies. Someone can do QR Codes that target the payer’s eNaira account. It becomes a universal wallet which can replace the current trend of each digital solution having its own wallet system. Everyone can just utilize the eNaira. eNaira can be the new mobile money like MPESA, a central store of value that can be securely accessed for making and receiving payments. It’s potentially a game-changer.
What are the benefits?
For fintech, it solves the problem of unequal access to deposited funds for the purpose of payments, they no longer need to go from bank to bank begging them to integrate, once CBN endorses their solution, it is over. For the CBN, It gives real-time visibility and control into payments and movement of money within the economy which can be analyzed for planning and national/international statistics. For consumers, it reduces the cost of transactions, it assures the safety of funds, and easy access to your money from an ever-increasing array of payment options. For the country, it could unleash more economic growth as payment becomes easier just like M-PESA did in Kenya.
Are there any risks?
Well, not much, you won’t lose your money by CBN folding up or becoming insolvent, that is not possible. The main risk is that of identity theft and it already exists with your card and internet banking today. I believe the eNaira will be more secure simply because it is being run by the CBN with almost endless resources and prosecutorial powers than your bank or card network who may be compromised by their own insiders. The trend of fraud in Nigeria today shows that bank and telco insiders are the biggest weaknesses of the payment system. The CBN will not cut corners on security since they’re not even profit-oriented. The other risk is too much security or lack of innovation by the CBN which may stifle the potential of the eNaira.
