Nigeria launches eNaira – Africa’s first digital currency

Nigeria has launched Africa’s first central bank digital currency (CBDC).

The eNaira was unveiled at State House by President Muhammadu Buhari, on Monday 25 October. In his speech he said that it would increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.

Alongside innovation, he said, the adoption of a CBDC could improve economic activities and increase Nigerian GDP by $29bn over the next 10 years.

“I am delighted,” he concluded, “to officially launch the Central Bank of Nigeria digital currency called the eNaira. And in so doing we have become the first country in Africa and one of the first in the world to introduce a digital currency to our citizens.”

In a statement released on 23 October, the director of communications of the Central Bank of Nigeria (CBN), Osita Nwasinobi, said that the eNaira “marks a major step forward in the evolution of money and the CBN is committed to ensuring that the eNaira, like the physical Naira, is accessible by everyone… The theme of the eNaira is: ‘Same Naira, more possibilities.'”

In this article we answer the following questions:

• What is the eNaira?
• How does the eNaira differ from cryptocurrencies such as Bitcoin?
• Why is the CBN introducing the eNaira?
• Who are the CBN’s partners in the eNaira rollout?
• How do you get the eNaira?
• Will you need a smartphone to access the eNaira?
• How does the eNaira work and what are its advantages?
• How will the eNaira affect Nigeria’s banks and fintechs?
• Why was the original launch of the eNaira delayed?
• Will the launch of the eNaira be a success?

What is the eNaira?

The eNaira will be an electronic version of the local paper naira currency, equal in value and issued by the Central Bank of Nigeria. It is not intended to replace cash but will function as a safe and efficient alternative means of payment.

How does the eNaira differ from a cryptocurrency like Bitcoin?

The eNaira will be a central bank digital currency, or CBDC, issued by the government, and it will have the same value as the paper, or fiat, currency.

CBDCs differ from cryptocurrencies in being regulated and therefore subject to banking laws. They are issued by a central authority and are therefore trusted by traders. The CBN issued its regulatory guidelines for the eNaira on 1 October.

As Davidson Oturu and Oluwapelumi Omoniyi writing on the Mondaq website explains, “CBDC is defined as a digital payment instrument, denominated in the national unit of account, that is a direct liability of the central bank… [while in contrast] cryptocurrency is built on blockchain technology which ensures the decentralisation of the creation, regulation, and use of cryptocurrency through the use of decentralised computer networks.”

Furthermore, the blockchain technology on which cryptocurrencies are built makes them anonymous. In contrast, while transactions in eNaira will be made anonymous by the CBN, it will still have access to information provided by users and be able to trace transactions, explain Oturo and Omniyi.

As the eNaira has the same value as the physical naira, its value will rise or fall in relation to the dollar in the same way as the fiat currency. It is therefore unlikely to be as volatile as a cryptocurrency. Some cryptocurrencies – known as stablecoins – are pegged to currencies, but none are backed by governments.

As Johnson Chukwu, founder and managing director of Cowry Asset Management Limited explained on Arise News’s Morning Show, “it’s not in coins and it’s not in notes, it’s in virtual format. So you can’t physically hold it, but you have it as a store of value, as a piece of payment, and it’s backed by the good faith of the central bank… for every unit of that currency you hold, the central bank can give you physical naira.”

The launch comes as a surprise to many as the CBN, like other central banks, has been suspicious of cryptocurrencies, such as Bitcoin, since their inception. As recently as February, the CBN issued a directive that prohibited banks taking part in financial transactions involving cryptocurrencies, in which many Nigerians have placed their savings as a hedge against naira depreciation.

Although the CBN later clarified that individuals were not prohibited from buying and selling, traders were forced to carry out their business on peer-to-peer platforms, an effective black market. US research firm Chainalysis has said that Nigeria is among the top 10 nations with the highest cryptocurrency use.

However, led by developments in China, central banks are increasingly coming round to the idea of creating their own digital currencies, seeing them as useful tools for promoting cross-border transactions, providing stability to payment systems and extending financial inclusion.

Nigeria is one of around 80 countries around the world that has been exploring the possibility, but will be the first to launch one in Africa. South Africa is moving towards a trial, while Ghana, Morocco, Tunisia, Kenya, and Madagascar are all reported to be in the research stages.

Why is the CBN introducing the eNaira?

The onset of the pandemic has led to the closure of bank branches across the country, and those that have reopened are mainly in urban centres. This has further excluded Nigerians without bank accounts in remote areas from the financial system.

Boosting inclusion is one of the principal aims of the digital currency. It aims to integrate millions of unbanked Nigerians into the banking sector. Some 55% of adult Nigerians were unbanked in 2020 – around 58m people. Of these, 35m own mobile phones and could be reached with mobile money.

One of the advantages listed by the CBN in its Design Paper for the eNaira is that the eNaira will provide “a clear means for the government to send direct payments to citizens eligible for specific welfare programs more rapidly than through other means” without the need for an intermediary.

However, the initial rollout will only take place in selected urban areas (see below), meaning that benefits for the disadvantaged in rural areas will not be seen for some time.

The eNaira is aimed at boosting transparency by allowing the regulator to better monitor currency transactions and curb black market trading in the paper naira. The new currency is built on blockchain’s open ledger technology, which reduces the risk of fraud by ensuring each eNaira note is unique and can’t be duplicated or counterfeited.

The eNaira is also aimed at boosting in-bound remittances by providing a cheaper, more secure and faster way for Nigerians in the diaspora to send back money. Remittances to Nigeria amounted to over $17.2bn in 2020, according to the World Bank.

Remittances are an integral part of the Nigerian economy, especially for the unbanked, Bitt Inc told African Business.

“However the costs and logistics associated with these transactions can also be prohibitive for people living in remote parts of the country. The eNaira will enable direct remittance payments between Nigerians within and outside of the country,” said their representatitve.

The eNaira is also intended to reduce so-called “leakages” from state budgets due to in-built traceability that uses blockchain technology. It is furthermore hoped that the new currency will offer an alternative to the cryptocurrency black market. At the same time, because this infrastructure will give the authorities much greater direct oversight of transactions, privacy issues could emerge.

A further benefit for the government is that the digital currency is expected to reduce the high cost of printing the physical currency, which amounted to N307bn (747m) between 2014 and 2019, according to a report from the CBN.

Who are the CBN’s partners in the eNaira rollout?

The CBN is working with technical partner Barbados-based Bitt Inc, whose electronic ledger, known as a Digital Currency Management System (DCMS), will be used to manage the currency.

The decision to appoint a non-Nigerian company provoked criticism in the local press. In a statement issued on 18 September, CBN governor Godwin Emefiele defended the decision, saying that the apex bank had gone through a “rigorous” selection process.

He said that out of 10 companies evaluated on “technology ownership and control; implementation timeline; efficiency and ease of adoption; support for anti-money laundering and combatting of terrorism; platform security; interoperability; and implementation experience”, BITT Inc had emerged the strongest.

He added that Bitt Inc would establish a company in Nigeria and that the CBN would take a majority stake in it.

Bitt Inc worked with the Eastern Caribbean Currency Union to launch “DCash” earlier this year – the first digital cash issued by a currency union central bank.

How do you get the eNaira?

The pilot launch will take place in Port Harcourt, Abuja, Kano and Lagos, and in the first phase digital currency will only be available to those who already have bank accounts. However, the eNaria is intended to be universal, meaning that it will eventually be possible to use it around the world to send and receive money or pay for goods and services.

To use eNaira, it will be necessary to create an eNaira wallet, which is digital storage managed by blockchain technology. During the rollout, there will be just one version of the wallet, the government’s Speed Wallet, although financial institutions will be able to develop their own versions later.

To create an eNaira wallet on a smartphone users will need to download the eNaira app from either the Google Play Store or Apple Store and complete the registration process. Feature phone users can use USSD codes and follow the registration prompts.

Once the eNaira wallet has been created users will be able to transfer money to it from bank accounts or credit cards and to send and receive payments to others in the digital currency.

Several tiers of eNaira wallet will be available, requiring different levels of identification, depending on whether a person has a bank account and the level of transactions they wish to make:

Will you need a smartphone to access the eNaira?

In its Design Paper for the Use of the eNaira, the CBN says that it has “factored in the need for inclusiveness as part of the core design principle of the eNaira… This principle has enabled the bank to focus on simplicity and ease of use, ensuring that Nigerians without Internet-enabled phones can access the service.”

How does the eNaira work and what are its advantages?

The eNaira will operate at four levels – consumer transactions, merchant/wholesale transactions, financial transactions, and MDA Transactions.

Consumer transactions

The eNaira will be legal tender and users will be able to make peer-to-peer payments to anyone who has an eNaira wallet without having to use an intermediary. Customers will be able to use their eNaira wallets to purchase goods in store by scanning QR codes.

Nigerians will be able to make payments for all manner of goods and services this way. As the CBN has stated that there will be no charges for peer-to-peer transactions and payments to merchants, consumers will make significant savings on what they would have paid if making payments through a mobile money service.

Unbanked Nigerians will be able to make transactions of up to N50,000 a day without the need for a bank account, while those with bank accounts will be able to send or receive money using a bank account or credit card linked to their eNaira wallet. It will be possible for customers to monitor their wallet, balances, and transaction history.

However, money held in an eNaira wallet will not be paid any interest.

Users will be able to transfer money out of their digital wallets back to their ordinary bank account, but it will not be possible to withdraw physical naira from an ATM from the wallet.

One of the main differences between the eNaira and existing e-wallets is that it will not allow transactions to hang, said Johnson Chukwuof Cowry Asset Management Limitedon Arise News’s Morning Show.

“Once you’ve made the transaction, it’s done immediately,” he said.

The biggest problem for individuals with the digital currency would be if they lost their access code. “Then you’re going to find it hard to retrieve your money,” he said.

The CBN’s eNaira website gives an example of how the digital currency should work for international transactions. Abuja-based roofing sheets supplier Olugbenga Fakoredele Arenola describes how much easier he expects it to be to make payments to his Ghanian supplier for an urgent shipment of materials:

“With eNaira, I could buy any amount of goods I wished to buy from him without worrying about whether or not the IMTO I use is the same as his, or has affiliation with his, or is linked to his bank, or if his IMTO is linked to my bank. I would simply enter amount, and send straight to his wallet, and he receives it in the Cedi equivalent instantly… I would not have to wait till morning as I was doing then any longer.” 

The speed of the transaction will make it easier to meet deadlines and therefore not loose business because of delays, says Arenola.

Other levels of transaction

The CBN’s regulatory guidelines also give details of transaction types for merchants, financial institutions (FIs) and ministries, departments and agencies (MDAs):

Merchant transactions

The following services shall be available to merchants on the eNaira platform:

a) Merchant/Business to bank account;

b) Merchant/Business to Person (M/B2P); and

c) Cash to eNaira.

Merchants shall sweep their till balance(s) into their FIs accounts on a daily basis.

FI Transactions

The following services shall be available to FIs on the eNaira platform:

a) FIs to CBN / CBN to FI;

b) FI to Government / Government to FI;

c) FI to Business / Business to FI; and

d) FI to Customer.

MDA Transactions

The following services shall be available to MDAs on the eNaira platform:

a) MDAs to Person / Person to MDAs;

b) MDAs to MDAs;

c) MDAs to FIs / FIs to MDAs;

d) MDAs to CBN / CBN to MDAs; and

e) MDAs to Businesses / Business to MDAs.

How will the eNaira affect Nigeria’s banks and fintechs?

Nigeria’s financial institutions will be close partners of the government in developing the new system, but aspects of it could impact strongly on their revenue models.

Although financial institutions will be able to develop their own eNaira wallets, the initial roll-out will use the CBN’s Speed Wallet (see above). This, along with the fact the CBN will own “the infrastructure, platform, customer, and data”, could “turn the regulator into a competitor and provide the CBN a first-mover advantage over the banks”, warns Tochukwu Egesi, writing on the Inclusion Times website.

Furthermore, because peer-to-peer and peer-to-merchant transactions will be free, traffic will be lured away from the payment services of banks and fintechs. This could “grossly affect” banks’ non-interest revenue models and present “uncertainty in the business model and sustainability of thriving payment fintechs in Nigeria”, according to Egesi.

In addition, users might choose to hold money in their eNaira wallets instead of leaving it in deposits with their banks.

Why was the original launch of the eNaira delayed?

The launch was originally scheduled for 1 October, but on 30 September the CBN announced it had been delayed so as not to clash with the country’s Independence Day celebrations.

According to the Nairametrics website, which claims to quote anonymous sources close to the launch, the real reason was that visits to the new currency’s official platform, which went live on 27 September, were 10 times higher than expected. The CBN therefore “decided to postpone the launch in order to recheck and retest the robustness, safety, scalability and security of the eNaira system”.

A legal challenge to the launch on the basis of trademark infringement brought by ENaira Payment Solutions Limited was heard by Nigeria’s Federal High Court on 30 September. The presiding judge ruled that the launch should go ahead in the national interest and on the basis that the plaintiff may be adequately compensated, but did not dismiss the case, which was adjourned.

Will the launch of the eNaira be a success?

Writing on the Mondaq website, Davidson Oturu and Oluwapelumi Omoniyi comment that the CBN has set itself a “herculean task” in “minting, issuing, distributing, and redeeming the eNaira” and question whether it and the country’s financial institutions will be capable of carrying out all the ensuing responsibilities.

They quote from an IMF blog that says: “Offering full-fledged CBDC requires central banks to be active along several steps of the payments value chain… Failure to satisfy any of these functions, due to technological glitches, cyber-attacks, or simply human error, could undermine the central bank’s reputation.”

Nairametrics said that the delay to the eNaira’s launch (see above) was due to the CBN’s preoccupation with ensuring it was successful and avoiding a botched launch like that of Obamacare in the US, when the website was “unable to consistently handle 500 users at once in the testing phase”. They reported that a team of 12 directors and 75 staff was “camped out at a secure location working day and night to ensure everything goes hitch-free”.

If successful, the launch could have great positive repercussions for Nigeria’s banking system and the economy as a whole.

The eNaira could reshape the country’s financial landscape and push legacy banks to expand and adapt the services they offer, comments the CBN’s partner, Bitt Inc.

“Bitt believes that central bank digital currencies (CBDCs) represent a first step toward realising a quantum leap in infrastructure transformation that enables global financial networks to interact in a faster, more modern, and secure way,” says the firm.

Additional research and reporting by Charles Dietz.

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