Gains, worries over eNaira App

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From Uche Usim, Abuja

With 87 countries racing to develop their own Central Bank Digital Currencies, Nigeria, on October 25, 2021, became the first nation in Africa and the sixth in the world  to launch an electronic currency – the eNaira.

Ahead of the United States and the United Kingdom, Nigeria trails behind the Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada in digital currency deployment.

Powered by the Central Bank of Nigeria (CBN) and Bitt Inc., as technical partners, Tech experts described the eNaira as a historic game-changer designed to open a new world of innovations, especially for people in the rural areas, who are at the bottom of the banking pyramid.

The CBN Governor, Mr Godwin Emefiele, described the eNaira, which leverages blockchain technology, as a people-oriented and  audience-centric digital currency with a face.

Specifically, the eNaira seeks to evolve a fast, cheap, reliable and available payment channel.

The Central Bank Digital Currency (CBDC) also aims to support the digital economy, improve economic activities, simplify and facilitate cross border payments and trade; ensure the inclusion of excluded people in the financial system; improve the effectiveness of monetary policies; ease tax remittance and collection to support economic growth and ease in administering strategic social interventions to support Nigerians.

The eNaira can also smoothen foreign remittances to Nigeria cheaper and faster. Nigeria accounts for 40 per cent of total remittance flows to sub-Saharan Africa, and total remittances to Nigeria in 2023 are projected to reach nearly $35 billion, more than six per cent of Nigeria’s Gross Domestic Product (GDP).

But there are worries that such a unique innovation has been starved of sufficient public enlightenment both in traditional and new media, especially in the rural areas, where the bulk of the unbanked reside.

This gives the digital currency an elitist aura and retards its velocity to permeate deeper into the lower strata of the society.

Nonetheless, the eNaira mobile app witnessed over 600,000 downloads within the first month of launch and was recently ranked Number One Global Retail CBDC by PricewaterhouseCoopers (PwC) as contained in its 2022 CBDC Global Index and Stablecoin Overview. 

As at December 2021, the app downloads jumped to 756,000 from 700,000, while over 35,000 transactions have been conducted on the platform.

At the early stage of the launch, the CBN boarded over 488,000 consumer wallets and about 78,000 merchant wallets, with downloads occurring in over 160 countries (per Google Playstore and Apple Store data). 

The apex bank has also recorded well over 17,000 transactions amounting to over N62 million with the average transaction being about US$9.3 each at kick off. 

Again, over 33 banks have been fully integrated on the eNaira platform.  N500 million has been successfully minted by the apex bank and N200 million issued to financial institutions for the takeoff.

These numbers, analysts reckoned, suggest the adoption rate has been appreciably high.

The PwC in its 2022 CBDC Global Index and Stablecoin Overview, gave the eNaira a retail index value of 95 while the country also ranked number one in Africa. The index is based on a Banking for International Settlements (BIS) working paper, the World Bank, and PwC analysis.

The eNaira and cash are all variants of the legal tender. Either or both can be used to carry out transactions as the situation demands and will not earn any interest to holders. 

The CBN has urged Nigerians not to expect their eNaira to serve as a hedge against inflation because the value will be similar to the physical naira. 

In line with Section 2 of the CBN Act 2007, the CBN is the issuing authority of all forms of Naira.

The Central bank will also be responsible for determining the technical, regulatory and operational standards for eNaira.

With eNaira, one word that should resonate with Nigerians is “e-wallet” because it is the pivot on which all transactions of the digital currency revolve. Without the e-wallet, the eNaira functionalities will elude intending users.

The first thing is to visit your bank to register and have the e-wallet. Those in the rural areas can visit their nearest banks to register.

Users can pay money from a created e-wallet (pair-to-pair), with eNaira as long as they have Near Field Communication (NFC), wifi, and bluetooth. It attracted zero transaction cost for the first 90 days after the launch.

Payment is just a phone to phone transfer that is safe and secure. The initial zero charges also applied when users sent money from their wallets to bank accounts and made withdrawals at agent or merchant locations.

You can transfer your cash to eNaira and vice versa and since it is powered by blockchain technology, transactions on this platform enjoy some level of security such that even if one’s phone is stolen, the transaction is safe.

You can also transfer funds from your regular accounts to your eNaira. For instance, if you had N100,000 in your bank account, you can transfer N30,000 to your eNaira and be left with N70,000. If you owned no bank account hitherto, you can walk into a bank and use your cash to open an eNaira account and transact your business, rather than moving about with cash with all the concomitant risks.

But despite the outlined benefits of the eNaira and the fact that it is safe and secure with cryptographic techniques against counterfeiting, cloning, and other forms of attack, many insist it is not foolproof.

The International Monetary Fund (IMF) has warned about the potential expansion of the use of the eNaira for cross-border fund transfers and agency bank networks, which could lead to new money-laundering and terrorism financing risks.

There are also concerns about personal privacy on CBDCs, particularly with account/identity of connected ones like the e-Naira, in the same way they have been raised on BigTech corporations.

Stakeholders also note that the e-Naira will expose more people, especially illiterates in the rural areas, to the risk of stolen passwords, hacked accounts, Internet banking frauds, etc.

The cyber security concerns are against the backdrop of a recently-released report, which showed that cybercrime will cost the world $10.5 trillion annual damage by 2025. In 2020 alone, the global loss from hacking and cyber crimes increased by nearly $1 trillion and tech experts say strategic efforts must be made to ensure the eNaira does not add to the crisis. As such, there are calls for investments in cyber security or partnership with the right stakeholders to protect the eNaira and ensure users enjoy its offerings 

However, experts insist that creating  the eNaira on the blockchain technology means you cannot have a duplicate or fake eNaira, as each eNaira note will be unique. To ensure security of funds, the eNaira is expected to have two-factor authentication and other measures.

Nigerians can link the e-wallet to their bank account or adopt the pay-as-you-go option with a prepaid option and a promise of an embedded security token system that makes information unreadable to fraudsters. In a nutshell, the eNaira is a critical national infrastructure fortified with comprehensive security and intelligence systems.

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On eNaira’s effect on inflation, analysts assure that it would check roundup inflation.

For instance, coins in Nigeria are scarce; thus, most merchants round up their prices to match with available currency, usually notes. This rounding up induces an artificial rise in prices because any cost-push does not cause the price hike but other factors, for example, selling eggs for N100 instead of N88. With the e-Naira, it becomes possible to transfer the exact cash price in the marketplace, especially in rural areas. This reduces the possibility of “round-up inflation.”

Again, the eNaira has a low-cost advantage when compared to FIAT (normal currency). The daily transfers between accounts are at no cost to the account holder. Lower transaction cost is a massive incentive as traders will pay no fees for withdrawals and deposits to and from their bank account. No transaction fees reduce the cost of commerce while improving safety.

The CBN stated that while efforts will be made to put signages and decals at designated merchant locations, customers can simply ask the merchants if they accept eNaira.

However, to guarantee sustainable success of the new initiative, economic analysts have called for massive enlightenment, especially among the unbanked and the illiterates; since the eNaira has the capability of bringing Nigerians who have no bank account, but have a phone into the formal financial economy. 

With the eNaira, salary payments and exact payments for goods and services can be concluded without the use of the Internet. It eliminates the need for ‘change’ during purchases. A carpenter can accept payments on his phone, store them in his e-wallet, and make transactions with any vendor.

Commenting on the eNaira on Nairametrics, Dr Omobola Adu, a research analyst at GDL, said: “I think the eNaira is a good initiative in the sense that in the next couple of years, the global economy should be moving to digital currencies. We’ve heard announcements by various countries on plans to start their digital currency, so we can say that the CBN is moving in the right direction.” 

However, he does not think the introduction of a digital currency would automatically strengthen the value of the Naira.

“The eNaira is just a digital representation of the Naira itself, so it doesn’t strengthen the value of our currency. 

“If I say 5 e-Naira is N5,000 today, what will make 1 e-Naira be N5,000 tomorrow will be the attractiveness of our currency and what we produce (existing factors). The existing factors (demand and supply) plus production levels will continue to be the major factors driving the value of the Naira,” he opined.

Dumebi Udegbunam, a senior banker, hailed the move by the apex bank as a formidable step as the nation navigates into the 4th industrial revolution.

“I think it’s a good step forward to advance the banked population further and also encourage the financial inclusion ideology of the populace. We are entering into the next evolution and that’s the digital evolution and to be forward-thinking at this point in time is critical,” he said.

Dr Adesola Adedutan, the managing director of First Bank Nigeria said that there are significant differences between CBDCs and cryptocurrencies, explaining that CBDC provides a platform for the governments to leverage blockchain technology to maintain a centralised and institutional role over the currency.

Chuks Nwaneri, lead developer, QuickAir Networks Limited, appreciates the move for the e-Naira launch.

He said: “I think it’s a good thing and a right step to take at this time. The world is innovating for all the right reasons, and Nigeria shouldn’t be left out. The introduction of the digital currency by the apex bank will solve, to a large extent, some of the challenges it has been facing in the country over time, especially in the area of monetary and fiscal policy.

“The benefit is enormous even if we, the citizens, don’t momentarily see it. And as a country, we have to adjust to such necessities. If our local financial institutions are to remain relevant in the next five to ten years from now, this is the way to go.”

Ihejirika Destiny (Dlexeffect), a YouTube Tech Reviewer & Product Designer working closely in the Nigeria financial sector, said: “The CBDC is a positive move in my opinion especially as we tend to evolve fully into a cashless society. If the suitable measures are put in place with proper regulations, the CBDC or e-Naira will help reduce the delays of daily transaction cost and also the speed in which transactions are settled.”

On the average, Nigerian’s ability to adapt to the CBDCs, he said, “some conditions need to be met for this transition to happen smoothly. One of those conditions will be making sure a large amount of the population have bank accounts with Bank Verification Numbers (BVN). According to the Nigerian Inter-Bank Settlement System Plc (NIBSS), the nation had 47 million Bank Verification Numbers (BVN) which means that more than half of the country’s adult citizens are still without verified bank accounts.

“A lot of effort will be needed to enable this currency to be available for even the middle and lower classes. That being said, Nigeria might not be fully ready for a digital currency.”

Affy Okoh, a civil servant said, “I’m waiting for the eNaira. As long as it’s cheaper and safer to transact with it, I welcome it with all my heart. 

“The world is going digital and Nigeria cannot afford to lag behind”.

Abubakar Usman, a trader had this to say: “I don’t know what they are talking about. What is eNaira? My people in the North don’t do anything other than cash. The CBN and the banks should educate us seriously on this matter. I’m not ready for it. I want cash”.

Bimbo Adelakun, a student, said that “it is a good development so long as it is safe and secure”.

Already, the CBN plans to introduce the Unstructured Supplementary (USSD) code as part of steps to improve the Central Bank Digital Currency (CBDC).

This was disclosed by the Deputy Governor of the CBN, Kingsley Obiora, at the IMF African Department Speakers Series held recently.

Obiora said that Nigeria was doing well based on a PwC report which showed that Nigeria was number one in terms of adoption, adding that the CBN would keep growing and improving on the system.

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