Naira Falls as New Notes Scarcity Exposes eNaira Weakness
The Naira traded at N461. 67 to the United States (US) dollar at the Investors’ and Exporters’ foreign exchange window amidst the ongoing scarcity of new notes which has revealed the weakness of the eNaira as means of payment in Nigeria.
There is unease in Nigeria as depositors are finding it difficult to access the local currency due to scarcity while the Central Bank of Nigeria remains unfazed about the development that has thrown citizens into turmoil.
While transactions on electronic platforms increased more than 45% to about N39 trillion year on year, according to NIBSS, the relevance of the eNaira in the big equation remains unimpressive as Nigerians seek alternatives toward meeting daily spending requirements.
With mixed sentiments, and relatively weak literacy among traders, the adoption of the eNaira for day-to-day has been weak. In Nigeria, most market women don’t accept other payment means apart from physical cash.
At the end of Oct 2022, the CBN indicates that the volume of eNaira in circulation in Nigeria was N 3,298,786 million; rising from N2,965,985 million a year earlier. Earlier in the week, the apex bank told Nigerians to adopt eNaira as an alternative to cash holding.
There have been notable glitches in the deployment of eNaira towards the year-end in 2022, and for some time, the app was missing on Google Play, signalling possible risks to users. In Nigeria, a large number of people still find the digital currency unattractive.
Yesterday, the FX spot rate at the Investors and Exporters window represented a depreciation of 0.15 per cent, compared to an exchange rate of N461 on Monday. The open indicative rate closed at N461.25 to the US dollar on Tuesday.
Traders said an exchange rate of N462.50 to the US dollar was the highest rate recorded within the day’s trading before it settled at N461.67. The local currency was sold for as low as N446 to a dollar within the day’s trading.
A total of US$ 68.85 million was traded at the official Investors and Exporters window on Tuesday. In October 25, the Central Bank of Nigeria launched eNaira to become one of the first countries in the world to introduce a Central Bank Digital Currency (CBDC) that is open to the public.
However, eNaira usage has failed to reduce new notes scarcity which forced banks to shut down operations following social unrest triggered by an inability to make withdrawals from business, and personal accounts.
Apart from using it as a means of conducting transactions, the launch of eNaira was motivated by the desire to leverage digital technology to improve financial inclusion, increase remittances inflows and reduce informality.
MarketForces Africa reported that the initial take-up has been strong with about half a million people downloading the consumer wallets in the first two weeks.
CBN has consistently argued that its multi-tiered FX management policies represent deliberate efforts to mute excess demand for frivolous imports and are both necessary and effective to protect local industries, International Monetary Fund said in a recent report.
It said the CBN did not deem that parallel market rates represented the fair value of the naira, given market imperfections. In the open market, the Naira was sold at N755.
By design, the eNaira offers low-cost and phone-enabled financial transactions outside established channels. This could potentially increase financial inclusion over time in rural areas and help meet the authorities’ ambitious target to increase the share of financially included adults to 95 percent.
