Tom Chiahemen
Introduction
On Friday, 1st October 2021, Nigeria will launch a new digital currency tagged the eNaira. The money we hold is comprised of two forms – physical (bank notes and coins) and digital (money stored or exchanged in our electronic bank accounts). With increasing internet penetration, Nigerians have taken to the use of digital money by increasingly effecting transactions online using bank apps or websites or other digital platforms. One can therefore argue that the Naira is already in existence in electronic form. It is against this backdrop that the introduction of eNaira by the Central Bank of Nigeria (CBN) which has been declared to be legal tender, making it unlawful not to accept it as a means of payment becomes curious and debatable.
What is the E-Naira?
On its recently launched website (www.enaira.com), the eNaira is described as a Central Bank of Nigeria-issued digital currency that provides a unique form of money denominated in Naira. eNaira is said to serve as both a medium of exchange and a store of value, offering better payment prospects in retail transactions when compared to cash payments. The website further lists the benefits of the eNaira to foster economic growth; provide a secure, faster and cheaper diaspora remittance option; traceability which limits its use for illicit and fraudulent purposes; enable effective, equitable, and faster distribution of cash assistance to households and communities in the government’s social welfare programmes; accelerate financial inclusion; increase local and international trade; stronger security and aid revenue collection by reducing cash handling costs. To use eNaira you must download the eNaira wallet (from app stores) which is a digital storage that holds the eNaira. To make payment or receive money in eNaira requires access to the eNaira account. Users can also dial a USSD short code and follow the required steps to perform transactions.
The Differences Between the Digital Naira and eNaira
As earlier noted, the Naira is already digital which comprises the money we hold in our online bank accounts. So, what is the difference between the current digital Naira and the eNaira? Based on data collated from information releases by the CBN, the main differences can be summarised as follows:
1. The current digital Naira can be withdrawn in cash, therefore with a debit card, we can withdraw from an ATM the money in our online bank accounts or through other means like cheques, cash withdrawal forms etc. The eNaira however will never be withdrawn in cash as it will only be received digitally and spent digitally.
2. The current digital Naira in our online bank accounts constitute direct liabilities on the balance sheets of the banks and other financial institutions (it is the banks who owe the customers for monies they deposited with them). The eNaira however is a direct liability on the Central Bank of Nigeria.
3. The technology used for the digital Naira is as chosen by the banks and other financial institutions to offer banking services to their customers. For the eNaira the CBN has chosen to hold and manage the eNaira wallets on a distributed ledger (blockchain technology).
4. Currently when we transfer digital Naira held in our online bank accounts, the bank charge transaction fees. For the eNaira, the CBN says all transactions including payments and inter eNaira wallet transfers will be free of any charges.
5. Deposits made in interest-bearing digital accounts currently attract interest payments from the banks. For the eNaira, the CBN says no interest whatsoever will be paid on balances in eNaira wallets!
6. There are intermediaries for the typical online bank transactions for example to transfer money from one customer to another involves going through a bank to effect the transaction. For example, if I hold an account with bank A and I want to transfer money to another person with an account with bank A or bank B, I first transfer the money from bank A to the receiving bank who then credits the recipient’s account (payer – bank – recipient). Whereas for eNaira transactions, there are no intermediaries as you simply transfer money from one eNaira wallet directly to another eNaira wallet with the bank (intermediary) eliminated from the transaction flow!
7. Money can be transferred from digital bank accounts currently held with banks to eNaira wallets. But no money can be transferred from eNaira wallets to a digital bank account! So once money is converted to eNaira, it will be in eNaira and can never be reconverted to the digital Naira that be withdrawn in cash!
Concerns about the E-Naira
There are grave anxieties and apprehensions with the introduction of the eNaira including some unanswered questions as follows:
1. There is fear that the eNaira will provide the CBN a loophole to engage in unchecked PRINTING of money. Printing money as used here does not refer to printing of cash (bank notes and coins) but rather it is a situation where the CBN increases money supply to the economy electronically which is also called Quantitative Easing. Thus, if the government wants to pay salaries, social welfare interventions, contractors etc, the CBN will simply credit the eNaira wallets of the beneficiaries thus increasing money supply. Government will therefore be spending money it did not earn or did not have because payments will not be made from balances held by the government with banks but by simply the CBN will change electronically the balance in the eNaira wallets of the recipients from zero to any amount the CBN wants! The danger with printing money is that it causes negative impact on the economy including rising inflation because money supply is increased without commensurate increase in productive activities.
2. The CBN explains that once users create their eNaira wallets, they will be able to transfer money from their existing bank accounts to fund their wallets. It is not clear if the monies in the wallets will still be with the banks or transferred to the CBN but given that the balances in the wallets are said to become the direct liabilities of the CBN, it means the monies are likely no longer going to be with the banks. The implication is that there will be technically a run on the banks as more and more users create eNaira wallets and move their funds from the banks to their wallets! This will not only impact negatively on the banks’ ability to support the economy by reducing their capacity to grant loans but also impact on their profitability with attendant consequences on the stock market. It is now looking like the CBN is now competing for deposits with the commercial banks!
3. There will be negative consequences on savers who are currently paid interests on their savings by the banks but once they transfer their money to the eNaira wallet, the CBN says they will not pay a kobo in interest on any balances held in the wallets.
4. The banks have so far managed their cybersecurity watertight to keep away largescale data and systems breaches. The CBN says the eNaira system uses a two-factor authentication system in addition to cryptographic encryption to ensure the safety of customers’ wallets and the eNaira holding. It is hoped that this commitment to ensure impregnable security is maintained by the CBN with utmost assurance.
5. It is interesting to note that a nation that truncated the electronic transmission of election results on account of lack of internet penetration now launches e-Naira that runs on the internet and mandates it for use by all. It is left to be seen how an akara and pap seller in a village setting without a smart phone will accept the eNaira which as a legal tender cannot be rejected when tendered in payment for goods and services.
6. An example of how eNaira will facilitate international trade is stated on the eNaira website with the testimony of a business owner as follows:
“Even as I had just made purchase for goods in the UK, the reality of eNaira would be that I simply send and the Pounds Sterling equivalent pops up at his UK office, and they process the payment immediately…”
Currently account holders with banks in Nigeria are restricted in the amount of foreign transactions they can conduct on their Naira-denominated bank accounts, for example one cannot spend more than $100 on a Naira debit card on a foreign currency-denominated transaction. It is therefore not clear whether the CBN now wants to lift the ceiling such that regardless of the amount of transaction, any eNaira wallet holder can simply send any amount of Naira and it will be translated into a foreign currency? If so, the question will be that where will the CBN get all the foreign currencies to fund such transactions. Also, from the example above, will the UK supplier (office) also have an eNaira wallet to receive the pounds? because the CBN says monies in eNaira wallets cannot be transferred to bank accounts. There are many unanswered questions with the international trade dimension of the eNaira.
Conclusion
With the widespread acceptance and use of digital Naira, it is not clear the overwhelming benefits that has made the CBN to rush the introduction of the eNaira. The grave concerns expressed above also need to be addressed by the CBN if Nigerians and the business community operating in Nigeria are to gain confidence in the eNaira for it to have wide acceptability.
References:
https://enaira.com/
https://enaira.com/news/insights/local-and-international-trade-how-the-e-naira-can-cause-positive-shifts
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