e-Naira: What You Need to Know
The e-Naira, as implied by its nomenclature, is a digital version of Nigeria’s official currency, Naira, and is created and executed on a blockchain ledger. e-Naira eliminates the need for a central organization, allows peer-to-peer and heavily reduces risks of fake currency exchange.
What is eNaira?
eNaira is the name given to the CBN’s first proposed digital currency.
The new currency will not replace the physical Naira but will act as a digital representation of it.
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According to the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, the benefits of central bank digital currency are numerous. It lists for example:
- the increase in cross-border trade,
- the acceleration of financial inclusion,
- cheaper and faster remittances,
- easier targeted social interventions,
- improvements in the effectiveness of monetary policy,
- efficiency of payment systems,
- and even improved tax collection.
Godwin Emefiele indicates that the eNaira will function as an electronic wallet in which customers can hold existing funds in their bank account.
CBN Response to Cryptocurrency
This digital project is the result of a long and deep reflection started in 2017, but its commission has been sped up, given the significant explosion in the use of digital payments and in line with the digital economy boom.
This made it necessary, rather than just convenient for CBN to follow the global trend in which over 85% of central banks are now considering adopting digital currencies.
As at 2020, Nigeria was ranked third in the world for virtual currencies after the United States and Russia, while it tops the list in peer-to-peer bitcoin (BTC, 0.32%) payments, according to data site UsefulTulips via CoinDesk.
With the CBN’s and other regulatory body’s intense abhorrence for cryptocurrencies, this project aims to lower the popularity of cryptocurrencies, which are gaining on the largest economy on the African continent and are a huge financial risk factor.
Nigeria is following in the steps of fellow economic giant, China, another country with strong apathy for cryptocurrency, who became the first major economy to launch the test version of a digital currency last year.
However Nigeria’s positioning is unique, as it becomes the first African nation to issue its own digital currency. Following a competitive bidding process involving several companies, the Central Bank of Nigeria (CBN) chose Caribbean fintech, Bitt, to help it deploy the digital naira.
The company already led the development and launch of the first digital currency issued by the central bank of a monetary union, the Eastern Caribbean Central Bank, earlier this year.
Global fintech company, Bitt, is partnering with the Central Bank of Nigeria (#CBN) to roll out their digital currency (#CBDC) to the largest economy on the continent of Africa.
– Bitt (@BittGlobal) August 30, 2021
Under the terms of the partnership, Bitt will have to make eNaira accessible to the segment of Nigeria’s 211 million citizens and residents by the end of 2021. It can count on its currently authorized digital currency management system (DCMS) for this.
The use of this product will, it is learned, reduce the time required to deploy the applications necessary for the digital naira.
“The digitization of the naira will benefit the entire Nigerian financial ecosystem. The financial and humanitarian benefits of our technology will be transformative, especially in the lives of the 50 million unbanked Nigerians, ” commented Bitt CEO Brian Popelka, who is proud to be working on such a project in such a huge country known for its leadership in fintech.
While several African states have officially declared that they are working on central bank digital currency projects, Nigeria becomes the first country to take concrete actions that go beyond the simple “feasibility study”.
Ghana, which indicated in June to be the most advanced African nation, has still not given a clear deadline. The central banks of South Africa and Rwanda are working on similar projects, while the BCEAO has indicated that it is still in the preliminary stages.
Has e-Naira been Launched?
The e-Naira will be launched on October 1, 2021, but this date is expected to be moved back due to its “coincidence” with the country’s national independence anniversary.
Does e-Naira replace Cryptos?
Despite the eNaira being issued by the central bank and following the official exchange rate, this currency should “be used only to facilitate transactions,” Emefiele has warned.
Thus, e-Naira is therefore unlikely to dampen Nigerians’ interest in cryptocurrencies, which is mostly viewed as an escape from the weakness of the naira in the parallel foreign exchange market
How will the eNaira work?
The eNaira will work as a digital version of the physical Naira.
Financial institutions licensed by the CBN will be responsible for ID verification, eNaira payment processing, and creating wallets for customers to hold their eNaira.
The eNaira wallet is similar to a bank account and is created in the same way; however, it will be a separate account that is not connected to an already existing bank account.
Transactions will be possible between two parties that both have an eNaira wallet, which allows you to store, send, and receive eNaira.
Is eNaira the same thing as Bitcoin?
No. Unlike Bitcoin which is a cryptocurrency, the eNaira is a digital currency issued by the government.
This difference has a big impact on the stability of the currency.
For example, the eNaira will maintain the same value as the Naira. Therefore, its value will not rise and fall the way Bitcoin does, also meaning it is not something to invest in to grow your fortunes.
The eNaira simply makes it easier to facilitate transactions digitally without needing to be backed by cash.
How will the eNaira affect the economy?
It is still unclear what impact eNaira will have on the Nigerian economy, if any at all.
However, the CBN believes the eNaira will greatly improve financial inclusion, payment processing, and tax collection, among other things.
The eNaira is also expected to increase cross-border trade, which could have a positive impact on the Nigerian economy.
How will eNaira affect money transfers to Nigeria?
It is still unclear how cross-border transactions will work with eNaira.
This is still a big question many experts have ahead of the launch of the CBN’s pilot scheme of the eNaira.
However, one thing is certain.
The eNaira will not replace physical Naira. Therefore, it is still possible to send money to Nigeria as usual.
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