By Onaghinon Eseosa Lloyd
…And the race to be a Digital Champion
The Central Bank of Nigeria (CBN) finally launched the eNaira, the digital currency for Nigeria. The introduction comes after the CBN directly discouraged the use of cryptocurrency in the country. But Nigeria is, however, a leading adopter of cryptocurrency, and this may be one of the reasons for the quick birthing of the eNaira. Although there have been some teething challenges since its introduction, the new digital currency could potentially be a good development.
For the fact it carries the potential to be a good development for Nigeria, this article is to allow me proffer suggestions as to how and what I would love the eNaira to develop into. This is because we are in a competitive world and the eNaira can give us an advantage if we think through it with a view to putting Nigeria as the country with the leading and most widely acceptable digital currency.
For most of human history, commodity currency was used. Fiat currency such as the Naira is a more recent development and was first used about a thousand years ago. Cryptocurrency is neither fiat, nor commodity currency. It is an evolution whose time has come. However, it was conceptualised to exclude the role of the central banks in general, and only became popular when Bitcoin (the first cryptocurrency) was created by Satoshi Nakamoto (a pseudonym) after he solved what we call the double spending challenge with digital currency.
This was a situation where digital currencies were duplicated, when computers were used; and therefore, digital currency could not be unique. The way to solve that problem was to use an intermediary. However, with the cryptograph built on a distributed ledger technology known as blockchain (it was distributed because all the participants could have access to the transaction which created transparency in the system through the fact that a cryptocurrency or bitcoin could be checked to know if it had been spent), it meant that digital currency could no longer be duplicated and I did not need to trust the next person to be able to accept payment. Peers could check the ledger and verify transactions. No centralised role needed again. This meant that issuance of currency (a central banking role by an algorithm governance) could be usurped by anyone issuing their own currency.
Most people would recall that fiat currency had certain functions as was taught in school. These are as a store of value, measure of exchange, unit of account and standard of deferred payment. These functions make money widely acceptable. However, the jurisdiction mattered as a country was sovereign. This sovereignty led to foreign exchange as different countries have different currencies. But digital currencies and cryptocurrencies have the capacity not to be limited to a geographical space.
As an example, Bitcoin can be exchanged anywhere in the globe. Fiat currency is, therefore, gradually being impacted by the activities of these cryptocurrencies, and as mentioned earlier, their impact could be far reaching. El Salvador recently adopted bitcoin as a legal tender, and this has further brought the conversation of cryptocurrency adoption to the fore. Other countries have taken the option of digital currency of their own.
A digital currency is explained as a means of payment that exists purely in electronic form. All cryptocurrencies are digital currencies but not all digital currencies are cryptocurrencies. Digital currencies exhibit similar properties as fiat money except that they are in digital form. Digital wallets have been prevalent, and the use of computers and phones have enabled their adoption. The major difference between digital currency and cryptocurrency or digital coin is that the digital coins are privately issued and are not regulated by most countries. Their dealings are peer to peer, and they do not need any form of intermediary to operate.
The Central Bank of Nigeria has categorically stated that the eNaira is a digital currency even though the underlying technology is exactly the same as that of any cryptocurrency and could be exchanged on a peer to peer, level. However, it is issued by the CBN and can only be mined by them.
The eNaira uses a wallet like any other digital (or crypto) currency and it has now taken off. Based on the CBN regulations, their would have to be the usual know your customer conducted and there is a need to follow through with the Anti Money Laundering and Combating the Financing of Terrorism rules. The typical cryptocurrency is a set of encrypted activities that does not require the human interface, especially as it is a fully democratised and transparent ledger system.
There are basic guidelines for being able to register for an eNaira Wallet. These rules have been given by the CBN and banks administer them. The e-wallet can be downloaded on Play Store and Apple Store and, therefore, widely available, except that your financial institution plays the KYC role currently.
Based on the above the eNaira, therefore, technically requires you having a bank account. It would have been great if it was possible to be able to link your wallet to other platforms e.g., NIN, BVN, Mobile Number or a combination of two of the mentioned to ensure that you can only have one unique wallet. With such a quality it means that we can truly reach more people than the current limit. While I am aware that there is an agency angle to being able to load eNaira, it does not take away the fact that you need an account. I would love to be able to separate my eNaira transactions from my banking transactions (e.g., as if I was dealing in bonds and stocks separately).
The eNaira, based on the existing rules, cannot be changed to physical cash for obvious reasons, though it seems this might be navigable through agents. This particular quality could have been extended such that I would be able to use my eNaira anywhere in the world and, therefore, it should be integrated into the global payment system.
In such an instance, if a Nigerian travelled abroad, he could be allowed to make payments at any merchant location without the opportunity to be able to convert to cash. Also, FX transactions can be converted into eNaira. This would increase the acceptability with Nigerians and enhance remittances.
It would have been great if the eNaira had been sufficiently tested before its launch to avoid the low ratings that were attributed to it by users. A co-created eNaira rather than one where the CBN gave the lead would have been great. Imagine if the telcos, fintechs and banks came together to ensure it was one that could be used seamlessly across their platform. The acceptability and adoption could, therefore, have been faster, and the confidence levels could have been higher.
While it has a similar trait as a stable coin (one that its value is derived from an underlying asset), an international acceptance could lead to enhanced trade and not just remittances and international shopping. Such would mean that the eNaira can be adopted by businesses (possibly linked to the TIN or RC numbers). This would create opportunities for businesses to be able to make easier payments on the one hand, and to be able to receive payments on the other, especially as the eNaira cannot be converted to local Naira or international cash.
In conclusion, I believe the eNaira can be made widely acceptable and could be widely adopted if the CBN allows its use to be applicable to a broader spectrum of activities; and that is what I would like my eNaira to be able to do.
Onaghinon Lloyd (FCA, MCTI), who studied economics, with Master’s in Finance and Management from Cranfield University, is a financial and management consultant with over two decades corporate, business and retail banking experience. His area of expertise covers project financing, private equity investment, corporate and business lending and has financed businesses and projects in all major sectors of the Nigerian economy.