The much anticipated unveiling of digital currency by the Central Bank of Nigeria (CBN), also known as e-naira, according to analysts, is a major step in digital banking that will benefit consumers but not good for the banks. In this opinion report by Bamidele Ogunwusi, the impact of eNaira for Nigerian banks is x-rayed.
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The CBN, in a recent statement, said it has concluded plans to launch its Central Bank Digital Currency (CBDC) pilot scheme called the e-naira on October 1, 2021, with Bitt Inc., a financial technology company that utilises block chain and distributed ledger technology to facilitate secure peer-to-peer transactions, as a technical partner.
The e-naira is an electronic record or digital token of the naira to be issued and regulated by the CBN. It is expected to be a legal tender for the country and has a non-interest bearing status, as well as a transaction limit for customers.
Globally, there has been interest surrounding CBDCs among central banks, governments and the private sector.
The concept, according to analysts at Coronation Research, primarily originated on the back of the popularity of cryptocurrencies like Bitcoin, Ethereum, among others, as it has also gained more traction following the onset of the COVID-19 pandemic and a global need to distribute as well as efficiently track economic stimulus funding, prevent illicit activity and illegal transactions.
As such, e-naira aims to bring the best of both worlds—the convenience and security of digital cryptocurrencies alongside the traditional banking system’s regulations.
Analysts at Coronation Research said, “We understand that to use the e-naira to transact, users need 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). In addition, users will be able to transfer money through peer-to-peer (P2P) transactions from their e-wallets to other wallet holders and person-to-merchant/ business.
“The structure of the e-naira is similar to a commercial bank account. However, it is non-interest bearing. Excluding executing and managing digital currency tokens, the CBN would be able to gather, analyse and store data on e-naira transactions. The role of deposit money banks would be to take responsibility for conducting KYC and AML/CFT compliance compatibility on merchant e-naira wallets as well as monitoring illicit activity”.
For developing countries, Nigeria inclusive, a significant portion of the population remains unbanked. A CBDC such as the e-naira can assist with boosting financial inclusion across the economy given that unbanked nationals often cite distance and transportation costs to banks as a major hindrance to owning a bank account.
Another advantage of the e-naira is the potential for simplifying monetary policy implementation by making it easier to channel money. Remittances also represent one of the most compelling usages for digital currencies by reducing the number of intermediaries, cost, opacity, and time required for cross-border payments. The e-naira could also eliminate some transaction costs, augment expediency, and offer seamless payment services.
However, unlike most cryptocurrencies, the centralised nature of the e-naira means that the CBN would have oversight on all e-naira accounts. Since 2014, at least 60 central banks have been exploring CBDCs. For instance, the Digital Yuan project in The People’s Republic of China is undergoing trials, with at least c.2bn Yuan (approximately US$300 million). In addition, countries like the Bahamas, Cambodia, Ukraine, and others have also started CBDC projects.
By eliminating intermediaries, the e-naira could be 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.
Significantly, the e-naira could indirectly assist with expanding the Federal Government’s tax net.
However, analysts at Coronation added that “the e-naira could threaten the ability of banks to collect fees from wire transfers, cheque issuances, and other payment services”.
Folashodun Shonubi, CBN Deputy Governor, Operation, hinted that the planned launch of e-naira in the country would enhance banks liquidity and promote efficient Diaspora remittances as it will also challenge the current high cost of diaspora remittances in the long run.
Culled from Daily Independent.