Nigerian digital currency to stimulate growth

By  Luke Mulunda

The recent launch of eNaira, Nigeria’s digital currency, has raised the stakes for financial digitalization in the most populous country and the continent at large. The eNaira was launched by Nigerian President, Mr Muhammadu Buhari, on 25 Oct 2021, making it Africa’s first official central bank digital currency (CBDC). It also puts Nigeria among the earliest adopters of digital currency globally.

The Central Bank of Nigeria (CBN) eNaira is predicted to benefit the economy by saving the huge cost of managing physical cash and including more Nigerians in the financial sector, as those who do not have bank accounts can easily key into the eNaira.^[1]

CBM says the digital currency will also help in tracking money laundering and fraud as data generated will give authorities more control. By launch time, 33 banks had fully been integrated on the eNaira platform, with over 2,000 customers on board and over 120 merchants successfully registered.

Godwin Emefiele, the governor of CBN claims the eNaira has been designed to complement and strengthen the economic ecosystem with security safeguards and policies to maintain the integrity of the financial system.

The launch of the CBN digital currency is being seen as a milestone that holds much promise for the financial system in Nigeria and the banking sector. Other African countries are keenly watching the eNaira rollout. Its success could prompt some of them to launch their own e-currency.

Nigeria began working on the digital currency in 2017 as the role of cash in financial transactions continued to diminish. This trend was accelerated by the onset of the COVID-19 pandemic and the resurgence of a new digital economy.

The main global cryptocurrency brands include Bitcoin, Litecoin, XRP, Dash, Lisk and Monero, but Bitcoin leads the pack in Africa.^[2] Many central banks across the world are considering issuing digital currencies to cater to businesses and households seeking faster, safer, easier, and cheaper means of payments. A handful of countries including China, Bahamas, and Cambodia have already issued their own CBDCs.

Seven countries have now fully launched a digital currency, according to Central Bank Digital Tracker. Nigeria is the latest country to launch a CBDC, and the first outside the Caribbean. Several major economies are engaging in cross border payment tests, the newest being Project Dunbar a partnership between South Africa, Singapore, Malaysia, and Australia.^[3]

In Nigeria, the adoption of the CBDC and its underlying blockchain technology can increase Nigeria's gross domestic product by US$29bn over the next 10 years. Alongside digital innovations, Nigeria says CBDCs can foster economic growth through better economic activities, increased remittances, improved financial inclusion, as well as more facilitated cross-border trade.

In 2019, Tunisia became the first African country to move its national currency to a blockchain platform with the help of the universal contracting platform, Monetas. The eDinar, as it’s called, can be used to make money transfers, pay for utility bills, and manage official government identification documents.^[4]

The eDinars are also available to transfer between citizens, with shops, cafes, and restaurants amid the central bank plans to integrate it in cross-border payments, circumventing the need for US dollars.

 

References: