eNaira: Why Nigerians May be Slow to Adopt the Digital Currency

The Nigerian government announced its plan to launch its own digital currency the eNaira which it hopes will fill the void its ban on cryptocurrencies has created. The news was met with mixed reactions across the nation. The Central Bank of Nigeria penned the 1st of Oct as the launch date but had to shift it due to certain reasons. While we await the launch of the e-naira. Let’s break down what it is and the possible challenges. Following the ban on cryptocurrencies, the

What is the E-naira

According to the CBN, the e-naira is the digital equivalent of fiat or paper or currency. It falls under a category known as the Central Bank Digital Currency (CBDC), which refers to digital currencies issued by a country’s apex bank. 

E-naira Vs Cryptocurrencies

While the e-naira and cryptocurrencies like Bitcoin, Ethereum, Tether, etc., are both considered digital currencies, it is their regulation and control that sets them apart. Cryptocurrencies are not issued by any central authority, rather, they are the results of complex mathematical calculations over the internet. A process that is known as mining. 

Cryptocurrencies provide absolute autonomy when conducting financial transactions. Since there are no mediating third parties keeping track of cryptocurrency transactions. 

However, CBDCs like the e-naira are the reverse, with the currency being issued by a country’s apex bank which serves as a mediating third party ensuring that all transactions are traceable and that the transaction parties can be identified. 

It’s worthy of note that both the e-naira and cryptocurrencies run on a similar network known as the blockchain. A blockchain is a series of individually separate blocks of information stored in the order in which they occurred. It’s a series of 1s and 0s to represent an agreement or contract between two parties. It can hold emails, land titles, emails, contracts, certificates, bond trades or any form of agreement between two parties. 

For now, bitcoin is used as a store of value and also for financial transactions. But this is not to say it could be used to securely store other valuable documents.

The CBN has disclosed that the e-naira will be based on the Hyperledger Fabric Blockchain, which was developed by the computer hardware company, International Business Machines Corporation (IBM).

The official website for the digital currency in preparation for its deployment has been launched. It serves as a platform to not only download the eNaira app but also to get information on the CBDC’s features and benefits.

Benefits of the eNaira

According to the CBN here are some of the benefits of the eNaira for commercial banks, individuals, businesses and  the government.

• Economic Growth: The eNaira is expected to increase access to capital and financial services thereby improving interest transaction rates and ultimately fostering economic growth.
• Faster International Transactions: The eNaira provides a secure and cheaper faster means of making payments across international borders.

• It’ll combat Fraud: The traceability of the eNaira makes it difficult to use the digital currency for fraud or illicit activities.
• Faster Social Welfare Implementation: The eNaira is a faster and equitable means of distributing cash. This will help government efforts when providing financial relief to households and communities during social welfare programmes. 
• Financial Inclusion: Since you don’t need a bank account to have a tier 1 eNaria account, alot of unbanked people in the rural areas can begin to enjoy financial services. 

The Challenges with the E-Naira

The move towards the eNaira was largely fueled by the Nigerian government’s alleged untraceable funding of the EndSARs protest via cryptocurrencies. Despite the promised benefits of the much-delayed eNaira, there are some crucial challenges that stem from the distinctions between the CBDC and cryptocurrencies. There’s no running from the fact the eNaira can’t effectively scratch the itch for cryptocurrencies. Let’s have a look:

Lack of Autonomy

Traditional fiat currencies are susceptible to a number of constraints and hazards such as booms and busts of the economy. As we’ve seen in the past, these scenarios can sometimes result in bank runs and crashes. This implies that users do not have complete control over their funds. On the other hand, Cryptocurrencies like Bitcoin provides user autonomy, at least in theory, because their prices aren’t tied to specific government actions. This implies that bitcoin users and owners have complete control over their funds. The eNaira is basically the digital version of CBN issued notes and fall short when it comes to autonomy.

No Interest on eNaira

The Trading of Bitcoin, Ethereum and other cryptocurrencies have viewed a possible path out of poverty for Africa. This is due to the volatility of of the digital currency. People buy and sell when the value increases. But with the eNaira, this will not be possible. The CBN issued digital currency does not gain interest, thus eliminating any possibility of trading the currency.

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