How Has eNaira Performed?
eNaira is still struggling for acceptance despite an array of benefits listed by the Nigerian monetary authority for individuals, businesses and non-profit making entities. An obvious fact that distinguishes eNaira from cryptocurrencies is regulation. Unlike enaira, cryptoassets are under no regulation.
This remains a key unpriced, though. Cryptocurrencies have turned into instruments for financing terrorism, globally, a trend that appears worrisome to market regulators. However, finding an equilibrium value for government-owned e-assets has remained a herculean task.
At the moment, the digital coin app has 100,000+ downloads on the Google apps store, which is way below more than 100m banking populate in the country. Key issues facing adoption are lack of potential added value to the deposits, security risks and of course what use is it for the 99 percentile with low income, literacy and foreign transactions.
On the other hand, a number of Nigerians with means see their privacies exposed by adopting eNaira, and this secretive set with deep pockets taken out of the equation remains a threat to digital currency adoption.
MarketForces Africa maintains that eNaira, which is the Central bank of Nigeria’s liability is designed for people who have fewer inflows due to its N5 million peg. The cutoff point is the deposits/holdings peg as users are not allowed to hold more than N5 million in ewallet. There is also a daily transfer limit.
How has the growing population key into this? Just one out of every potential user is currently interested in eNaira, others are still struggling to find cogent economic reasons why they should use the technology.
Beyond any form of media hype and push-through, adoption has not been impressive. Though, this is not unexpected. The eNaira has no particular advantage except that it transfers potential risks – cybercrime risk, and internet fraud to holders.
Get it right, until the middle class and elites adopt eNaira, its success will be very limited and it is unlikely that the monetary authority will force the asset on anyone.
In the banking sector, the 80:20 rule still applies to total deposits just as it is to loans with key Nigerian banks recording high loan concentration. Few rich people hold a large chunk of total cash and even loan credit from Nigerian lenders.
Nigerian youths that might likely take a bout of soup using eNaira are largely unemployed and large numbers of these classes are solving their joblessness with ‘yahoo-yahoo’, with a move to ‘Bobrisky Trade and Economy’ school of thought – whatever that means!
Apparently, the Central Bank of Nigeria shows no love for using cryptocurrencies for trades, though the Securities and Exchange Commission has a different view as the authority said it is working on digital assets regulation.
Unfortunately, in a harsh and rash manner, the Godwin Emefiele-led CBN banned the crypto without weighing the pros and cons – It happens to be the worst anachronistic law ever made in a decade.
It’s not clear if eNaira would allow holders to use the CBN’s official exchange rate, as MarketForces Africa spoke with large numbers of people on possible benefits they have enjoying.
The value remains equal to cash holdings and eNaira has not been pushed for some foreign merchant adoption without first conversion to foreign currencies, including the dollar.
Low acceptance threatens eNaira months after launch. This has made it difficult for users who have to grapple with finding merchants that would readily take the coin for transactions.
Users cannot easily identify businesses that accept eNaira, though CBN maintains that efforts will be made to put signages and decals at designated merchant locations, customers can simply ask the merchants if they accept eNaira. It falls short in terms of convenience. On its site, CBN said to move cash into the eNaira wallet, users have to go to their bank.
CBN officially launched the “eNaira”—a central bank digital currency (CBDC)—on October 25, 2021. This is the second CBDC fully open to the public after the Bahamas, other countries and regions, such as China and the Eastern Caribbean Currency Union, have been conducting CBDC pilots with a subset of their citizens.
Given the size and complexity of Nigeria’s economy, the enaira launch has drawn substantial interest from the outside world—including from central banks. What is eNaira?
Like coins or cash, the eNaira is a liability of the CBN. The eNaira uses the same blockchain technology as Bitcoin or Ethereum and, like them, the eNaira is stored in digital wallets and can be used for payment transactions; and it can be transferred digitally and at virtually no cost to anyone in the world with eNaira wallet.
There are, however, important differences
First, the eNaira features stringent access right controls by the central bank. Second, unlike these crypto-assets, the eNaira is not a financial asset in itself but a digital form of a national currency and draws its value from the physical naira, to which it is pegged at parity.
Why did Nigeria introduce eNaira?
According to the CBN, the eNaira is envisaged to bring multiple benefits, which are expected to materialize gradually as the eNaira becomes more widespread and is supported by a robust regulatory system. Key benefits include the following:
Increase in financial inclusion. For now, the eNaira wallet is provided only to people with bank accounts, but its coverage is expected to eventually expand to anyone with a mobile phone even if they do not have a bank account.
A large number of people do not have bank accounts (38 million people; 36 per cent of the adult population), and allowing those of them with a mobile phone to have access to the eNaira would increase financial inclusion and facilitate more direct and effective implementation of social transfers programs.
It is expected that the move would enable up to 90 per cent of the population to use the eNaira.
Facilitation of remittances: Nigeria is among the key remittance destinations in sub-Saharan Africa, with remittance receipts amounting to $24 billion in 2019. Remittances typically are made through international money transfer operators (e.g., Western Union) with fees ranging from 1 per cent to 5 per cent of the value of the transaction.
The eNaira is expected to lower remittance transfer costs, making it easier for the Nigerian diaspora to remit funds to Nigeria by obtaining eNaira from international money transfer operators and transferring them to recipients in Nigeria by wallet-to-wallet transfers free of charge.
Exchange rate reforms, including a unified market-clearing rate, that reduce the gap between official and parallel market exchange rates would enhance the incentives for using eNaira wallets to send remittances.
Reduced informality. Nigeria has a large informal economy, with transactions and employment equivalent, respectively, to over half of GDP and 80 per cent of employment. The eNaira is account-based, and transactions are in principle fully traceable, unlike token-based crypto-asset transactions.
Once the eNaira becomes more widespread and embedded into the economy, it may bring greater transparency to informal payments and strengthen the tax base. Informal and formal businesses may also benefit if eNaira adoption enhances consumption through greater financial inclusion.
What are the potential risks?
Like digital currencies elsewhere, the eNaira carries risks for monetary policy implementation, cyber security, operational resilience, and financial integrity and stability.
For example, eNaira wallets may be perceived, or even effectively function, as a deposit at the central bank, which may reduce demand for deposits in commercial banks. Relying as it does on digital technology, there is a need to manage cybersecurity and operational risks associated with the eNaira.
What are the authorities doing to mitigate the potential risks?
The authorities have taken measures to manage the risks. The transfer of funds from bank deposits to eNaira wallets is subject to daily transactions and balance limits to mitigate the risks of diminishing the roles of banks and other financial institutions.
Financial integrity risks, such as those arising from the potential use of the eNaira for monetary laundering, are mitigated by using a tiered identity verification system and applying more stringent controls to relatively less verified users.
For example, for now, only people with a bank verification number can open a wallet, but over time coverage will be expanded to people with registered SIM cards and to those with mobile phones but no ID numbers. The latter categories of holders would be subject to tighter transactions and balance limits.
Even so, wallet holders who meet the highest identity verification standards cannot hold more than 5 million (about $12,200) each in their wallets. To address cybersecurity risk, regular IT security assessments are expected to be conducted.
What can the IMF do?
The IMF remains available to help with technical assistance and policy advice. The IMF’s Monetary and Capital Markets Department has been involved in the eNaira rollout process, including by providing reviews of the product design.
The 2021 IMF Article IV mission emphasized the need for monitoring risks and macro-financial impacts associated with a central bank’s digital currency.
The IMF is ready to collaborate with the authorities on data analysis, cross-country studies, sharing the eNaira experience with other countries, and discussing further evolution of the eNaira including its design, regulatory framework, and other aspects. #How Has eNaira Performed?