…Initiative can increase GDP by $29bn in 10 yrs – Buhari
…It’ll advance payment boundaries – Emefiele
…CBDC will deepen financial inclusion, boost intra-African trades – Expert
..Lessens cost of printing the Naira – Economist
‘…Citizens need massive enlightenment’
The launch of the e-Naira by President Muhammadu Buhari on Monday, last week, has sent the signal that the Central Bank of Nigeria (CBN) was set to complete the digitalisation of the economy. In this report, BENJAMIN UMUTEME takes a look at the expectations and concerns of Nigerians.
Planning for Nigeria’s digital currency which began in 2017 was eventually launched by President Buhari. China, Bahamas, Cambodia, and a few other countries have already issued their own central bank digital currencies (CBDCs).
Following a series of engagements with relevant stakeholders including the banking community, FinTech operators, merchants and a cross-section of Nigerians, the CBN designed the digital currency.
Seen as a crypto-currency class, the e-Naira is meant to serve both as a medium of exchange and a store of value, offering better payment prospects in financial transactions when compared to cash payment.
Speaking at the unveiling of the digital currency, President Buhari said the e-Naira came in response to the need to improve the present payment system as well as cater for businesses and households seeking faster, safer, easier and cheaper means of payments. The president said further that there were Nigeria-specific benefits of the digital currency that cut across different sectors of the economy. He also said the adoption of Central Bank Digital Currency (CBDC) can increase Nigeria’s Gross Domestic Product (GDP) by $29 billion over the next 10 years.
“The absence of a swift and effective solution to these requirements, as well as fears that central banks’ actions sometimes lead to hyperinflation created the space for non-government entities to establish new forms of private currencies that seemed to have gained popularity and acceptance across the world, including here in Nigeria.
“In recent times, the use of physical cash in conducting business and making payments has been on the decline; this trend has been exacerbated by the onset of the Covid-19 pandemic and the resurgence of a new digital economy.
“Alongside these developments, businesses, households, and other economic agents have sought for new means of making payments in the new circumstances.
“Needless to add, close monitoring and close supervision will be necessary in the early stages of implementation to study the effect of e-Naira on the economy as a whole,” he said.
CBN’s explanations
In his remarks, the CBN governor, Godwin Emefiele, said the e-Naira marks a major step forward in the evolution of money in Nigeria as it would advance the boundaries of the payments system in order to make financial transactions easier and seamless for every strata of the society.
“Therefore, the e-Naira is Nigeria’s CBDC and it is the digital equivalent of the physical Naira. As the tagline simply encapsulates, the e-Naira is the same Naira with far more possibilities. The e-Naira – like the physical Naira – is a legal tender in Nigeria and a liability of the CBN. The e-Naira and Naira will have the same value and will always be exchanged at 1 Naira to 1 e-Naira.
“To de-risk the process, the CBN has given careful consideration to the entire payments and financial architecture and has designed the e-Naira to complement and strengthen these ecosystems and have implemented secure safeguards and policies to maintain the integrity of the financial system. Specifically, there will be strict adherence to the anti-money laundering and combating the financing of terrorism (AML/CFT) standards in order to preserve the integrity and stability of Nigeria’s payment system,” Emefiele said.
Making it work
In a bid to make the e-Naira project a success, the apex bank took its time to put in place certain measure, which included the minting of about N500 million e-Naira out of which N200 million e-Naira have been issued to banks.
Also, 33 banks have beenintegrated into the e-Naira platform just as over 2,000 customers have been on-boarded. According to Emefiele, over 120 merchants have successfully registered on the e-Naira platform.
For many Nigerians, the early signs have been encouraging as over 2.5 million daily visits to the website.
“Today, customers who download the e-Naira Speed Wallet App will be able to onboard and create their wallet; fund their e-Naira wallet from their bank account; transfer e-Naira from their wallet to another Waller; make payment for purchases at registered merchant locations,” the CBN governor said.
Experts’ reactions
In the meantime, experts have hailed the apex bank’s Digital Currency (CBDC), saying transactions “will now be very fast compared to what the speed of transaction is supposed to be using the regular USSS.”
Reacting to the development in a chat with Blueprint Weekend, the managing director/CEO of SD&D Capital Management Limited, Idakolo Gabriel Gbolade, said that the CBDC “will not only deepen the digital economy, but will also boost intra-African trade.”
He said, “The digital currency launch is a good initiative from the CBN because it will deepen the digital economy space and encourage intra Africa trade as well as encourage investors’ confidence in our economy.
“The e-Naira is a digital currency and the major aim is to boost trading activities and increase investor’s confidence in the Nigerian economy. It is expected to trigger increased transactions in the economy.”
Similarly, a political economist and development researcher Adefolarin Olamilekan, described it as “a welcome development,” saying the payment system would never be the same again with the e-Naira. According to him, it is an opportunity for Nigerians to bank with the apex bank.
Adefolarin noted that with the CBDC, the CBN would significantly reduce the cost of printing money.
He said: “All things being equal, the CBN e-Naira launch is a welcome development. Whether Nigerians are ready for the e-Naira and not doubting its technological efficacy is a question many contemplate on. The Central Bank of Nigeria has acknowledged that the liability of the e-Naira is directly on it, which is similar to the cash we hold. The liability of the cash we hold today rests with the CBN. So, it gives Nigerians the opportunity to bank with CBN.
“The e-Naira would reduce the cost of printing new naira notes. As the minting of e-Naira is electronic and charges of transferring funds would be lower for those using the e-naira. Interestingly, e-Naira is going to be a ‘game-changer’ that would provide an alternative payment system and would radically transform the payment landscape.
“Over the years, concerns around unwieldy portability, the acrimony associated with shortage of change for small transactions, the inflationary push associated with product pricing, the rapid deterioration of both paper and polymer notes. These are genuine fears; however, far from the above reasons, the worries about fiat Naira’s purchasing power being affected by double-digit annual inflation rates, are equally significant challenges to the current Naira profile.”
In his take, a professor of economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun state, Sheriffdeen Tella, said the e-Naira is a worthy innovation by the CBN. He, however, hoped that the banks would keep the charges low so as not to frustrate the project.
“e-Naira is a worthy innovation by the CBN, though some other countries are already into it. It is expected to strengthen the cashless policy. It is an extension or addition to normal fund transfer except that it can be used easily for cross border transactions. It also requires an app which may not be available for those phones used by the poor people,” Tella said.
Concerns
Like in every new project, Nigerians have continued to express concerns about the working of the CBDC and its ability to weather the storm. Some experts fear that Deposit Money Banks (DMBs) may be impacted by the introduction of the digital currency.
According to them, the implementation of the process would determine its effects on DMBs. Economists have said also the e-Naira, when rolled out, will have far-reaching implications for the future of the banking sector in the country.
For a professor of finance and capital market, Nasarawa State University, Keffi, Uche Uwaleke, said it is an obvious fact that the launch would have effects on the future of the banking sector.
He said: “Expectedly, being among first-time movers of a technologically-complex project such as a central bank digital currency, it is bound to create winners and losers and produce unintended consequences.
“The cheering news, however, is that the CBN appears to have devoted considerable time and resources to prevent undesirable outcomes especially in relation to the health of the Nigerian banking sector.
“In any case, that the CBN is testing e-Naira through pilot projects is a demonstration of a cautious approach. All said, the launch of the CBN’s digital currency is an important milestone which holds a lot of promise for the financial system in Nigeria and the banking sector in particular.”
However, Gbolade believes that rather than being competitive, the CBDC will complement the structure DMBs have on ground.
“The e-Naira is not competing with DMBs and it is a new initiative that will increase financial Inclusion in the economy.”
Paul Alaje, an economist, speaking on ChannelsTV’s Breakfast Show ‘Sunrise Daily,’ said the CBDC would add to the payment system as it would be relatively easier and cheaper to send money from one account to the other.
According to Alaje, it’s convenient and good, especially on the short-run.
“In the next three to five years, we will be saving one third of what we spend to print money. It would help the CBN to know how much money is in circulation-talking about money supply and how to control inflation,” he said.
The flipside
On the flipside, some experts opine that the issue of distrust is going to be a challenge. For the director, Centre for Economic Policy Analysis and Research (CEPAR), Prof. Ndubuisi Nwokoma, the e-Naira would be faced with a lot of distrust as implementation progresses.
“The launch of the e-Naira is a new path being taken by the CBN to follow in the global practice of enhancing the payment system through the use of digital currency. It is novel, even in advanced societies hiccups may be encountered as implementation progresses. Even currently, many global companies have not fully embraced the use of crypto-currencies in payments,” he said.
On his part, Alaje stated that the value of the Naira would not change overnight even with the e-Naira.
He said, “I really doubt if this will help change the value of our currency. If we look at the way Naira has been in the last 20 years, and we keep the e-Naira that way I doubt if it will achieve much.”
The e-Naira has the same value with the fiat Naira, but the only factor that can cause increase in the value of Naira is when there is increased FDI and investors confidence in the economy that would lead to more inflow of US dollars into the economy then the pressure on the Naira against other currencies will reduce and cause an increase in the value of Naira,” Idakolo said.
Adefolarin further said further that, “Undeniably, the e-Naira cannot enhance the value of fiat Naira. Respectfully, going by its function, it is to ease online payment. So, e-Naira is not going to be a saving grace to the current poor performance of the fiat Naira.”
Enlightenments
To make use of the e-Naira efficiently, many have called on the apex bank to embark on massive consumer education in order to get the buy-in of Nigerians.
They noted that the CBN needs to work with DMBs, MFBs and other PFIs to address challenges that may arise as a result of the use of the digital currency.
“There is the need for more enlightenment on the modus operandi, even for educated people. One also hopes the banks with not frustrate the project through unholy charges. It’s a worthy financial innovation and problems that might arise can be resolved as soon as they rear their heads,” Tella said.
The value question
Adefolarin told this reporter that the country’s import dependent economy, structural deficit, and a productive sector lacking the integration of primary, secondary and tertiary agrarian and mining sectors continues to pose a drawback to the value of the Naira.
According to the development economist, there needs to be a synergy of both the monetary and fiscal authorities as against the current situation where the repositioning of the Naira seems to have been left to the Central Bank alone.
He opines that to enhance the value of the Naira, there is a need to diversify the economy to produce more, earn additional export revenue and be competitive against imports.
“For us, healthy industrial capacity utilisation and expansion would ensure a realistic and stable Naira exchange rate that will drastically check inflation. “Incontrovertible, we understand the monetary policy ideas behind e-Naira; our task to bring back fiat Naira to a more valuable national currency of pride is more tasking.”
