Nigeria: How far can the CBN support the e-Naira?

The central bank digital currency (CBDC) codename e-naira goes live on October 1, 2021. The umbrella bank has been researching digital currencies since 2017 to understand how Hyperledger Fabric Blockchain technology is being used in the world.

In a recent stakeholder meeting hosted by its Information Technology (IT) department, CBN explained that Hyperledger Fabric is an open source project that serves as the foundation for the development of products, solutions, and applications based. on the blockchain using plug-and-play components intended for use in private companies.

The Nigerian Monetary Authority added that the importance of its digital currency would include macroeconomic management and growth, facilitation of cross-border trade, financial inclusion, the effectiveness of monetary policy, improving the efficiency of payments, income tax collection, improved remittances and targeted social intervention.

Some countries around the world, such as China (digital yuan), Bahamas (sand dollar) and the Eastern Caribbean (DCash) are among the few countries that have officially launched their national digital currency. Meanwhile, in Africa, South Africa (digital Rand), Tunisia (eDinar) and Ghana (e-cedi) are also joining the foray.

Earlier this year, CBN banned cryptocurrency transactions in the country, warning they posed a risk of lost investments, money laundering, terrorist financing, illicit cash flow and other criminal activities.

The ban was followed by a huge outcry from various financial experts and concerned citizens. The bank, however, has come up with a plan to switch to digital currency.

According to the CBN, the e-naira will be legal tender for the whole country as an interest-free CBDC issued by a sovereign authority. It has a transaction limit for customers and a value-based transaction. It will not increase in value like Bitcoin or other cryptocurrencies, but will work the same as the naira. The e-naira will be pegged to the naira so that their value remains the same as the stablecoins indexed to the dollar. There is an electronic wallet from the apex bank called “Speed ​​wallet”, which must be issued to all users and customers.

To use the e-naira to transact, users will need to download the Quick Wallet, validate their account on the wallet using either their phone numbers, National Identity Number (NIN), or Bank Verification Number ( BVN). Once done, users can start using the wallet. Users will be able to send money using Peer-to-Peer (P2P) transactions through their wallets to other wallet holders, Person-to-Merchant / Business where e-naira users can pay from articles to traders who have the e-naira wallet and vice versa.

According to the CBN, e-naira will promote financial inclusion and propel a cashless policy. There is also the possibility of transactions of ministries, departments and agencies (MDA) with e-naira; make remittances to their staff and members of the public.

The e-naira will be created independently of bank accounts; the wallet will be created by financial institutions which will create the customer identification through an application product interface.

However, the “Speed ​​wallet” will not compete with the wallet of existing bank customers. What is more, e-naira as a strategic national interest would be a critical security infrastructure that would be subject to full security oversight; all data and personally identifiable information (PII) will be kept outside the general ledger.

The technology enables a non-counterfeit CBDC as a digital bearer instrument that meets scale, interoperability, instant settlement, and other operational and policy requirements to be used as legal tender.

The point here is that with all of the exciting developments regarding the CBN e-naira, our case needs to be premeditated and careful. We must remember its cashless policy, the success of which is still being evaluated. However, some experts believe that the implementation of the e-Naira would be better than its cashless policy.

Ironically, CBN’s mandate to promote financial inclusion through e-naira could face problems with deficit internet infrastructure. There are also concerns that a Nigerian CBDC will be too expensive to implement compared to other existing systems.

Apparently the apex bank has its homework cut off. Above all, whenever we celebrate the innovation of the CBN as a monetary authority, we must recognize the need for a supportive policy against the process of accumulation of external reserves. We must show greater interest in the apex bank by avoiding unfortunate distortions, depreciation of the naira and destabilizing interest rates.

As a result, he must take steps to contain inflation. As argued elsewhere, the umbrella bank “would do better to devote its time and resources to pressing issues such as tackling double-digit inflation.” This would help not deprive the real sector of access to cheaper loanable funds that are needed to lower inflation rates and spur economic growth with increasing employment opportunities.

The question is therefore: “How far can the CBN support e-naira?” As Nigeria’s leading economist and monetary policy analyst, the late Henry Boyo, would say, “Nigerians are not questioning the process by which the CBN consolidates its policies.”

About Alexander Estrada

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