On 25th October 2021, history was made: Africa got her first cryptocurrency, in the form of eNaira.
But the record-breaking does not stop there; Africa’s first cryptocurrency: eNaira is one of the world’s only digitized versions of a fiat currency. This means that, unlike Bitcoin or the esteemed Dogecoin, Africa’s first cryptocurrency: eNaira will be fully supported by the Central Bank of Nigeria (CBN).
While this all sounds good, however, is creating a cryptocurrency really worth it for the CBN? Will it solve any problems, or just create new ones?
What is so special about eNaira?
It’s a CBDC. Central Bank Digital Currencies (CBDCs for short) are a rarity in the modern world, and thus far, the only other currencies like it are the Bahamian Sand Dollar and the Eastern Caribbean Bank’s DCash. Although not the same as a country’s fiat currency, CBDCs are meant to serve as a virtual representation of them.
As well as CBDCs being a rarity, what makes the introduction of Africa’s first cryptocurrency: eNaira particularly special for Nigeria is that an estimated 55% of Nigerians did not have bank accounts as of 2019. Whilst this number is increasing quickly, that still leaves dozens of millions in a position where they are unable to engage in a lot of activities most of us take for granted. This includes building a credit history, necessity for saving money digitally, keeping it safe, and for making big investments, like buying a sizeable property. With all that in mind, as well as Nigeria’s recent economic growth (even in the face of COVID-19), it is perhaps unsurprising to see the Nigerian state stepping in to help give all their people the boost needed to keep the economy vibrant after the 2020 recession.
If you have a bank account, then using regular Naira versus eNaira will be much the same experience for you; think Google Pay, Apple Pay, or using your debit card via your bank’s app. If you do not have a bank account, however, then none of these options are available to you. eNaira is meant to help bridge this gap by allowing users to have e-wallets, according to CBN governor Godwin Emifiele, meaning that users without bank accounts will be able to save money for what could be the first time in some of their lives.
It’s Africa’s first digital currency. This is not just a record broken for the sake of it. Developing nations – especially those developing as quickly as Nigeria has in the past decade – may be prime candidates for administering their own CBDCs in particular (as opposed to private cryptocurrencies); the enormous task of changing or outright implementing new infrastructure in developed countries can make innovative ideas like this almost unthinkable for all the red tape and sheer cost.
What could go wrong?
It may not be as inclusive as the CBN hopes. If the point of eNaira is to make commerce, trading and payment easier for more people, then we may have a slight problem. It is estimated that only just over 50% of Nigerians have mobile internet access. The proportion of Nigerians with internet access in general is not much higher, and it is not far off the percentage of Nigerians without bank accounts. Although the introduction of eNaira may not have purely been about equality and inclusion, it may not do much for the overarching issues behind social inequality in the country, contrary to the idealistic 90% accessibility estimates quoted from some sources.
Cybersecurity will need to be top-notch. Taking on the administration of an entire e-currency is a serious task, and the CBN has to have contingencies upon contingencies in order to be equipped for every kind of cybersecurity issue.
The CBN’s Director of Corporate Communications has reassured users that eNaira is impervious to cyber attacks, with unspecified technology in place to ensure safety of data, as well as passwords of ‘up to 12 characters’, intended to make it impossible for a criminal to access an eNaira user’s account.
“Gone are the days when cyber crooks will be allowed to have a field day and smile home with people’s sweat. e-Naira is… the equivalent of the physical naira, the only difference is that, while one is physical, the other is virtual” – Mr. Osita Nwansobi, CBN
Another security measure that may prove an issue for some users is the balance limit imposed on the eNaira wallet. Users will not be able to hold more than 5,000,000 Naira (around USD$12,200) in their wallets at any one time. This – along with the transaction limits – is an AML measure, and also a buffer to ultimately protect users in the event of eNaira becoming ‘too’ popular. At the very least, this is intended to make money laundering difficult for financial criminals.
There are privacy concerns. Any CBDC, by necessity, requires users to consent to their data being tracked, accounted for and identified internally by the national bank administering it. The CBN has also opted for account-based CBDC administration, meaning that the very implementation of eNaira involves the Nigerian government and CBN monitoring every transaction, having all users’ identities and being able to shut any suspicious transactions down in according with AML and counter-terrorism regulations. The Nigerian government has responded to privacy concerns by stating that total anonymity is actually undesirable. This should not be surprising; not even nine months before the introduction of eNaira, we saw the Nigerian state banning cryptocurrencies such as Bitcoin. The reason given was protection of
the public from financial crime – something the CBN seems to believe is fomented by the use of non-centralised cryptocurrencies. Although the CBN is right in that a CBDC removes any intermediary third-party, part of the formula for making eNaira is success is trust between users and the administrator. And potential eNaira users do not appear to trust the Nigerian state all that much.
This is not a new issue; we have seen this before with Big Tech companies like Meta and Google, as well as ISPs. These issues seem to come with the territory of major centralisation, and may simply have to be something users bear in mind before consenting to using eNaira. This appears to still be dividing eNaira’s potential user base.
It might be more trouble than it’s worth. The International Monetary Fund ran a study that concluded, ultimately, that many key questions about CBDCs and how they function have not yet been answered, and that they may not be worth the potential chaos caused to users and national banks. What happens when CBDCs are used across borders? Do e-currencies count as legal tender? Does the proposed CBDC even fit within the country’s currency management practices? Without answers to any of these questions and countless more, Nigeria will indeed serve as a pioneer for CBDCs – but possibly to the detriment of her people. CBN’s Head of Development Finance, Mr. Aminu Muhammad, has steadfastly rejected this notion, and declared that Africa’s first cryptocurrency: eNaira is the solution to incompetent currency management. Conversely, however, if eNaira goes down too well, and becomes very widely used, Nigerians may face the issue of commercial banks finding themselves essentially out of pocket. Poor liquidity in commercial banks leads to higher loan interest rates, which could devastate households. Here, the CBN deserves a lot of credit, however; transaction limits as well as balance limits (mentioned above) mean that, even in this rather dramatic hypothetical situation that essentially sees eNaira replace Naira in most daily functions, commercial banks’ losses are minimised.
Was the Nigerian government right to introduce eNaira?
CBDCs are new territory for the whole financial world, and we have yet to see how they fare in the long-term. With many regulatory, practical and borderline philosophical questions left unanswered about cryptocurrencies as yet, the CBN has made an exceptionally bold move in introducing a centralised cryptocurrency into what is already an ever-changing country that has just barely recovered from the pandemic recession. Personally, I am excited to see what the future holds for eNaira in the long run, and hope that it proves more than a short-lived experiment by a government seemingly frightened of cryptocurrencies.
Of course, this does leave the Nigerian people – especially those who may become reliant on Africa’s first cryptocurrency: eNaira, without bank accounts of their own – as a captive audience of guinea pigs for the CBN’s experiment. Many of them express worry over the safety of their data with the CBN and Nigerian state at large, and as a result, we may not see the same success with this centralised e-currency that we did with other cryptocurrencies in early 2021, when the CBN found itself scrambling to put a halt to it all. But within three weeks of the eNaira launch, half a million users were registered, We simply will not know whether eNaira will simplify or complicate investment and commerce within Nigeria until it has had several years to find its feet in Nigeria’s economy. So for now, we wait.
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