How far can CBN sustain e-Naira?

The Central Bank Digital Currency (CBDC) digital e-naira comes on stream on October 1, 2021. With the benefit of hindsight, the apex bank has been conducting research in regard to Central Bank Digital Currencies since 2017 and to understanding how Hyperledger Fabric Blockchain technology is being used globally. At a recent stakeholders meeting organized by the apex bank Information Technology Department. It explained that Hyperledger Fabric is an open source project that acts as a foundation for developing blockchain-based products, solutions, and applications using plug-and-play components that are aimed for use within private enterprises.

The Nigerian monetary authority added that the importance of its digital currency will include macro management and growth, cross border trade facilitation, financial inclusion, monetary policy effectiveness, improved payment efficiency, revenue tax collection, remittance improvement, and targeted social intervention.

Not envying this stride by the Godwin Emiefele led CBN, some countries across the globe such as China (digital Yuan), Bahamas (sand dollar), and Eastern Caribbean (DCash) are among the few countries that have officially launched their own national digital currency. In the meantime, Africa countries take part to develop its CBDC includes South Africa (digital Rand), Tunisia (eDinar), Ghana (e-cedi), Sweden, Japan, South Korea, and Russia. Significantly, if the pilot scheme is eventually launched, Nigeria will join other countries.

In retrospect, earlier this year, CBN banned cryptocurrency transactions in the country and warned that cryptocurrencies pose the risk of loss of investments, money laundering, terrorism financing, illicit fund flows and other criminal activities. Although, the banned was followed with a huge outcry from sundry financial experts and concerned citizens. This writer modest intervention comes in an opinion polemic title “CBN, cryptocurrency and monetary capitalist” at that time. The Central Bank of Nigeria, CBN, and stance on the banned however comes with blueprint of going into digital currency. And the advice by the Vice President Yemi Osinbajo that “thoughtful and knowledge-based regulation not prohibition” did count at this point.

According the CBN the e-Naira will be a legal tender for the entire country as a non-interest-bearing CBDC status issued by a Sovereign Authority. It has transaction limit for customers and a value-based transaction. It will not grow in value like Bitcoin or other crypto currencies but it will function the same way the Naira does. The e-Naira will be pegged to the Naira so their value remains the same like stable coins pegged to the dollar. There is an e-wallet of the apex bank called “Speed wallet,” to be issue to all users and customers.

On the other hand, to use the e-Naira to transact, users will have to download the speed wallet, validate their account on the wallet by using either their phone number, National Identity Number (NIN) or Bank Verification Number (BVN). Once done, users can begin to use the wallet. Interesting, all 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.

According to the CBN, the e-Naira will aid financial inclusion and propel a cashless policy-Naira. Moreso, participation of Government Ministries, Departments and Agencies (MDAs) in transaction with e-Naira to do remittances to their staff and members of the public is one of it possibility. This is in the form citizens making payment to MDAs through the e-Naira.

Furthermore, the e-Naira will be created independently of bank accounts; the wallet will be created by financial institutions that will create customer identification through an application product interface. Poignantly, the “Speed wallet” of the CBN will not compete with existing banks customers’ wallet. What’s more, is that e-naira as a strategic national interest would be a critical security infrastructure. That will be subjected to comprehensive security check; all data and personally identifiable information (PII) will be kept off the ledger and will not be stored on the ledger. Technology enables non-counterfeitable CBDC as a digital bearer instrument which meets the scale, interoperability, instant settlement and other operational and policy requirements for use as legal tender. This CBN’s e-Naira system hopes to achieve.

The point here is that with all the exciting developments about the CBN’s e-Naira, our case is for forethought and heed. However, fast forward to the same CBN policy of cashless, the success of that policy is in between. Although, there are experts who believes e-Naira would better the implementation of CBN’s cashless policy.

Ironically, CBN’s mandate drive for financial inclusion, through the e-Naira may have to contend with deficit internet infrastructure challenges. There are concerns also that a Nigerian CBDC will be too costly to implement when compared to other systems that exist.

Grippingly, the apex bank has its duty cut out. Hence, whenever we celebrate CBN’s innovation as a monetary authority, we must recognize the need for policy sustenance against the process of accumulation of external reserves. We must show greater interest in the apex bank avoiding unfortunate, distortion, primitive and retrogression in Naira depreciation and destabilizing interest rates.

As a result it must take measures to contain inflation. As it has been put forward elsewhere, the central bank is “better off spending its time and resources on pressing issues like how to combat double-digit inflation”. In consequence, this would help not to crowd out the real sector, from access to cheaper loanable funds that are necessary to drive lower inflation rates and boost economic growth with increasing job opportunities.

The question therefore is: “How far can CBN sustain E-Naira? Nonetheless, as foremost Nigerian economist and monetary policy analyst Late Henry Boyo would say, “Nigerians do not interrogate the process through which CBN consolidates its policies”.

Olamilekan writes from Abuja via [email protected]