By Amechi Ogbonna
If all things were to work as planned, then the Central Bank of Nigeria (CBN) will on October 1, this year unveil its e-Naira, the nation’s first digital currency for use by businesses, individuals and households longing for faster means of transactions settlement.
This much was confirmed by the bank on August 30, 2021, when it announced Bitt Inc. as technical partner for the formal introduction of the e-naira digital currency due to become a legal tender with non-interest-bearing asset status.
Governor of the CBN, Godwin Emefiele, has since committing to achieve 95 percent financial inclusion by 2024 implemented several policies to realise this objective.
For him, the e-Naira offers yet another critical step in the efforts of the regulator towards closing the nation’s 8.5 percent financial inclusion gender gap to enable it achieve the 2024 financial inclusion target.
The Governor had listed other benefits of the e-Naira option to include faster cross-border transactions, accelerated financial inclusion, cheaper and faster remittance inflows.
Emefiele had at different fora where he had had the opportunity to market the electric naira product highlighted in his various presentations that the product would facilitate easier targeted social interventions, monetary policy effectiveness, payment systems and tax collection efficiency in addition to making governmental remittances easier.
The bank chief had also earlier demonstrated how Government Ministries, Departments and Agencies (MDAs) will be integrated into the use the e-Naira to do remittances to their staff and members of the public once the scheme gathered critical mass as well as adoption of the e-Naira and how citizens can make payment to MDAs through platform.
While introduction of the e-Naira presents another learning curve in the nation’s monetary policy management, there is very little doubt that the apex bank seems poised to make its own a sweet story that would readily resonate with the nation’s business community.
According to the apex bank, it was indeed against this backdrop that Bitt Inc. its technical partner on the project was selected given its leadership position and proven technical competencies in the novel industry.
“Bitt Inc. was key to the development and successful launch of the central bank digital currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021,” the CBN said.
Although about ten companies were evaluated for the transaction said to have been graded based on technology ownership and control, implementation timeline, ease of Adoption, platform security, interoperability, and implementation experience, Bitt Inc., came tops with an average score of 82.3 per cent. The scores for some other bidders were: InterStellar – 76.9 per cent; Zimbali- 76.4 per cent; G+D – 76.3 per cent; and EmTech -66.4
Details of the scheme in a recent document from the apex bank also highlighted the duties assigned to each of the parties in the e-naira programme, even as the CBN itself will be responsible for the initial rollout, involving issuance distribution, redemption, as well as destruction of disused currency.
In its second stage known as the Financial Institution Suite, “licensed financial institutions will be able to request currency or issue stablecoins.” They will also “manage digital currency across branches, set and implement the know your customer KYC parameters, identify and AML compliance capability.”
However, the Federal Government’s involvement will be at the third stage where it will “process digital payments sent to and received from citizens and businesses.”
In the fourth stage are merchants who are expected to provide “low-cost payment and business management software, POS, remote payment solutions, online capabilities, transaction analysis and reconciliation.”
The last stage, known as the Retail Consumer Suite, will focus on the digital currency’s architecture.
But as the CBN progresses with the launch a wallet for its digital currency ahead of the formal unveiling of it e-naira by October 1, 2021, it has explained that it is not expected to compete with existing banks, but would serve as a means to transact value, pending when banks and other innovators can provide their own wallets.”
The wallet, which is also known as the Speed Wallet, will have three tiers. The first tier is designated for Nigerians without bank accounts as access will only be gained upon the submission of “a passport photograph, name, place & date of birth, gender, address and phone number.”
Tier-two wallet users on the other hand must “own an account with an existing bank.” Users at this level “can only send and receive $400 [N200,000] daily with a cumulative balance daily of $1,000. [N500,000.]” The minimum requirement for this level is a Bank Verification Number (BVN). The third tier allows transacting daily to the tune of $2,000 with a cumulative balance daily of $10,000. Having a BVN is the minimum requirement.
With over 70 central banks across the world currently considering one Central Bank Digital Currency (CBDC) or the other, only five of them have so far launched theirs. Of those five, four of them were designed and executed by Bitt Inc., the fintech company working with the CBN as technical partner for the launch of its digital Naira. Experts in the field of financial technology admit that CBDCs may or may not utilise blockchain technology, depending on the frameworks used to drive the assets circulation into the system.
Speaking at the Chartered Institute of Bankers (CIBN) advocacy dialogue series webinar CBN’s Deputy Governor, Operations, Mr Folashodun Shonubi, sated that the Central Bank Digital Currency (CBDC) will make it easier for the banking system to comply with existing laws such as anti-money laundering, customer protection against fraud and ensuring the safety and stability of the payment system.
Shonubi explains, “The Central Bank in its implementation has ensured the e-Naira feeds our economy and provides greater value.
“The central bank digital currency offers all the benefits of cash but in digital form. Every single digital currency is an electronic version of the cash, the legal tender. When you make a cash payment, settlement is done instantly; digital currencies entail the same promises and even more.
“CBDC offers a safer option from the privately issued cryptocurrency which have been based on the possibility to enable cheaper transactions but have now been used for investment.
“The intention is not to eliminate other forms of payment but to complement the current areas of payment options, thereby ensuring the stability of the payment system in the long run. I expect in the coming days we will see rapid inclusion rates.”
For instance, the Bank for International Settlement (BIS) for its part had noted in a report the various design choices for CBDCs, including: access (widely versus restricted); degree of anonymity (ranging from complete to none); operational availability (ranging from current opening hours to 24 hours a day and seven days a week); and interest bearing characteristics (yes or no).
It also lists the many forms of CBDCs are possible, with different implications for payment systems, monetary policy transmission as well as structure and stability of the financial system.
While the CBDCs may not function like paper notes or bitcoin, they will however bear some digital features similar to physical cash as the assets will be easily transferable between entities and carry the same value in third-party wallets or platforms.
This will also apply to their storage; CBDC users will store the tokens in their digital wallets and use them wherever they go. Potential users would need to open an account with their commercial banks and designated vendors with storage options varying from mobile to desktop, online and offline anywhere on the planet.
Speaking on the proposed e-Naira, analysts at Coronation Merchant Bank described eNaira is an electronic record or digital token of the naira issued and regulated by the CBN that is expected to be a legal tender for the country with non-interest-bearing status, and a transaction limit for customers.
The bank also listed some of the eNaira benefits to include a reliable low-risk, low-cost payment solution for consumers and businesses. In addition, the swiftness and ease of business transfers can increase economic activities, resulting in a broader impact on the economy.
“However, the eNaira could threaten the ability of banks to collect fees from wire transfers, cheque issuances, and other payment services.” It concluded
Also speaking, Prof. Uche Uwaleke, economist and former finance commissioner in Imo state says the eNaira is a welcome development on the part of the CBN. “I have said this before and I will say it again that the cost of handling cash by commercial banks would reduce as some deposits get converted to digital currency.
This would also weigh in on cost of currency management, which includes the huge cost incurred by the CBN in destruction of old and worn-out notes. This development is expected to enhance financial inclusion in the long run, lowering operational costs of handling physical cash as well as enhancing the efficiency of Nigeria’s payment systems.”
The Nasarawa state university don however admitted, there are associated concerns regarding the likely impact on monetary policy transmission, financial stability, inflation as well as the role of financial institutions. I still feel the CBN should do a thorough research on digital currencies including looking for possible mechanisms to control crypto-currencies.” He said
Also commenting Managing Director, Rigo Microfinance Bank, Adolphus Aletor, argued that many people have become rich through the speculative and volatile nature of cryptocurrencies. Some people claim to have invested one hundred dollars and today have balances over three hundred thousand dollars within the last few years. The e-naira does not have this attribute. I urge the CBN to use local realities to solve local problems. But for the reasons above, the idea of a digital currency is brilliant and welcome. While we applaud and emulate other countries for doing the same, the peculiarities of our system should drive us to a more innovative alternative.The government should work hand in hand with the CBN so as not to downplay the issue of trust.
It is going to be the key survival indicator for the e-Naira. If the government must get involved in crypto, I suggest they create a different industry that will accommodate all the razzmatazz, adrenalin rush, and separate it from the conventional banking activities.
Rilwan Bismarck, foremost economist and CEO Financial Derivatives, I really don’t understand it. I don’t know much about it and cannot comment on it. All I know is that I am satisfied with the physical note we have. I am still looking for the physical note.
The one that I can see I cannot find it, they are talking about e naira, which I cannot see because it’s electronic. But I believe that when we get to that bridge we will cross it.
For his part, Mr Muda Yusuf, an economist, and former DG of the LCCI…I can’t comment on this o. I don’t understand it.
The POS, electronic transfer, and the ATM are all there. The amount of transactions carried out through these means runs into trillions of naira and nobody carries cash around anymore because people move with their cards, which is electronic. So, what is e-Naira all about.