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Home Columnists eNaira: The Eagle that Refused to Fly! By Nick Agule

eNaira: The Eagle that Refused to Fly! By Nick Agule

by Tom Chiahemen
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Introduction

The Central Bank of Nigeria (CBN) on Thursday, 30th September 2021 announced a last-minute postponement of the launch of Nigeria’s new digital currency – eNaira – planned for next day Friday, 1st October 2021, as part of the activities to celebrate Nigeria’s national day for 61 years as an independent nation. The Director of Corporate Communications of the CBN, Osita Nwanisobi was quoted to have adduced “in deference to the mood of national rededication to the collective dream of one Nigeria” as the reason for the postponement. An online publication – nairametrics.com – quoting sources close to the implementation of the initiative cited “an unanticipated surge in visits on the website of the Central Bank’s eNaira initiative” to be the reason for the sudden postponement of the launch. The postponement came at the backdrop of a Federal High Court sitting in the nation’s capital city of Abuja ruling that the eNaira launch can go-ahead despite subsisting litigation over its patent right filed by ENaira Payment Solutions Limited against the CBN over a claim of trademark infringement.

Whether the reason for the postponement is as adduced by the CBN or Nairametrics, it does not speak well of the CBN. The CBN cannot express ignorance of the activities lined up for the national day celebration and only became aware at the last minute that the mood of national rededication was not the ideal time to launch a highly advertised and anticipated product – the eNaira. If on the other hand the reason is due to a surge in the hits on the eNaira website as suggested by Nairametrics, again it is myopic and even timid for the CBN not to have anticipated the surge to make adequate preparations to provide a solution to cater for the millions of users that will expectedly access the system on day 1 of launch. This calls to question the project management capabilities within the CBN which must be urgently addressed if the eNaira project is to be delivered to world-class standards as it is expected.

Bigger Issues with eNaira

Regardless of the reasons proffered by the CBN for the eNaira launch postponement, there are bigger issues the apex bank must chew on and fix before a successful launch of eNaira will be possible. This column highlighted some of the issues last week (https://frontviewafrica.com/e-naira-nigerias-new-digital-currency-the-hope-and-gloom-by-nick-agule/) and we will articulate more here. If these issues are not adequately addressed, the eNaira unlike what the CBN wants us to understand will become a fatal blow to the Nigerian economy and destroy our financial system stability. Here are some of the issues that require urgent attention by the CBN before the eNaira launch:

  1. eNaira will constitute a run on the banks – the CBN says users of the eNaira will have to withdraw their deposits from the banks and transfer the funds to their eNaira wallets before they are issued the eNaira. This will technically constitute a run on the banks as more and more users withdraw their deposits from the banking system into their eNaira wallets. The CBN has not offered any explanation if the banks will have access to the funds in the eNaira wallets. From the explanations offered by the CBN so far, the eNaira wallets will form a deposit system different from the Deposit Money Banks (DMBs)! But the CBN is not an DMB and it is left to be explained how the CBN intends to manage the deposits made in the eNaira wallets! It would appear that the CBN is now in direct competition with DMBs for sourcing deposits!
  2. Deposit withdrawal will ruin banks’ ability to create credit – the CBN has not offered explanations on how the DMBs are expected to create credit if their customers withdraw their deposits into eNaira wallets. Neither has the CBN offered explanations on what happens to existing loan assets on the balance sheet of DMBs currently funded by customer deposits if such deposits are withdrawn into eNaira wallets as proposed by the CBN. It is also not clear how the CBN intends to create credit from the deposits made in eNaira wallets a critical financial intermediary role traditionally left to the DMBs!
  3. eNaira is legal tender is tautology – It is not clear why the CBN says the eNaira is legal tender. What is legal tender is the Naira, the official currency of the Federal Republic of Nigeria. The eNaira is only a payment channel for the Naira in the same way as notes and coins, bank cards, bank transfers, cheques etc. It is tautology to say bank transfer or card payment as a mode of payment for the Naira is legal tender! It appears that the CBN is using this terminology to enforce and mandate the use of eNaira which is a strange stance because parties in a transaction should be allowed to offer and accept any payment channel of the Naira that is suitable to their circumstances.
  4. To enforce payments in eNaira will ruin contracts – the CBN has mandated that once payment is offered in eNaira, a recipient has no right to refuse it. It is not clear why the CBN has taken this hard stance to mandate a payment channel. It is akin to the CBN saying if card payment is offered, a recipient has no right to refuse acceptance. If the CBN does not correct this anomaly, contracts that have been entered into will have to be rewritten to include a clause on mandatory acceptance of the eNaira when offered. This will throw spanners in the works of the seamless running of business in Nigeria.
  5. International Payments – the CBN is yet to clarify how it plans to fund the international payments given the advertisement that a merchant in the UK can be paid in pounds using an eNaira wallet! Naira is not a convertible currency therefore it remains to be seeing how the CBN will fund the translation of payments from eNaira wallets to foreign currencies as advertised by the CBN. As eNaira is said not to be convertible to cash, it is not clear how the UK recipient will receive the pounds payment, will it be in an eNaira wallet or their normal bank accounts? The CBN must address these gaps before launching the eNaira.
  6. No interest payments – the CBN proposes that funds transferred to eNaira wallets will not attract any interest whatsoever. The CBN is yet to explain how savings and fixed term deposits which traditionally attract interest payments from the banks will work with the eNaira system. Is the CBN going to offer savings and fixed term deposits accounts with the eNaira? These are unanswered questions which the CBN must address before the launch.

Recommendations

1. The CBN will do well by using the period of postponement to fix the issues raised in this article and the last week’s including any bugs with the system and to test the system robustly before rolling out.

2. The CBN should not mandate the use of eNaira from day 1 but allow the system to operate in parallel with the current payment channels until the system is tested and confirmed to be robust enough before it is mandated in a general rollout.

3. To avoid a run on the banks and to maintain deposit liabilities on the banks’ balance sheets to support their loan assets, the CBN should allow the DMBs to be the custodians of the eNaira wallets. This way, if a user transfers funds from their bank accounts to their eNaira wallets, the funds remain with the banks. This will maintain the financial system stability without creating a parallel deposit system in the economy.

Conclusion

From every indication, the eNaira was not well thought through and it is not ripe for a general rollout. The CBN must resist the temptation to rush the rollout of the eNaira. A major project of this nature is rolled out in phases and both the software and hardware are stress tested over a period of time, bugs fixed, systems fine tuned before a global rollout is made. The CBN must cover all the bases, cross all the ‘Ts’ and dot all the ‘Is’ before launching the eNaira project.

References:
https://guardian.ng/business-services/court-okays-enaira-rollout-as-cbn-postpones-launch/
https://nairametrics.com/2021/10/01/why-cbn-postponed-the-launch-of-enaira/

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