E-naira: Feasibility, Reality And What Could Have Been If Cryptocurrency Was Left To Thrive

The Central Bank of Nigeria announced the launch of an indigenous digital currency months ago, shortly after it banned the use of cryptocurrencies like Bitcoin, Ethereum, etc., and operations related to them. While many people saw it as another effort of the Government aimed at blocking a financial path paved through blood and sweat without their help, the CBN Governor – Godwin Emefiele said that the major reason for the ban was that it was fuelling money laundering and terrorism in the country.

Following the ban came the shutting down of businesses in cryptocurrency and trading, and for those that didn’t completely shut down, the re-modelling of their business modus operandi. There was nothing these businesses could do as the Central Bank had ordered commercial banks to close any account that was associated with cryptocurrency.

Although the use of cryptocurrency had been banned, Nigerians geared towards peer-to-peer transactions as an alternative but this still didn’t make up for the ban as it still had its limitations and was completely different from when the law wasn’t against the use of cryptocurrency in the country.

As if to fill the gap that the ban left, the Central Bank of Nigeria announced that it was launching its digital currency. The apex bank claimed to have been working on this for about two years and said that it had considered the architecture, accessibility challenges, and privacy of the currency and will continue to review these factors as it takes every step towards achieving these plans. This statement was made during an online news briefing at the end of the Bankers Committee meeting which was held in June.

With the launch of the e-Naira less than a month away, there are many questions on the lips of skeptics as well as on the lips of the average Nigerian.

Although other Governments, especially in the West, have made mention of an indigenous currency and have tailored plans on how to achieve this, many of them have still not launched an indigenous currency. It is therefore quite a surprise, let’s not be modest, a huge surprise that Nigeria is saying that it is launching its indigenous digital currency ahead of other countries that have the technology readily available. This brings us to the first question…

How feasible is the e-Naira project?

There are a lot of controversies surrounding the e-Naira project already. There are also different opinions about it even though a few of them might end up being misconceptions. Before we ask ourselves about the feasibility of the e-Naira, it is pertinent to know that the average Nigerian sees it as a hidden agenda. I spoke to different groups of people across different social statuses, age brackets, and educational backgrounds and they all seem to believe that the e-Naira project will end up a debacle and is borne out of the desire to “enslave” and control the masses.

On the feasibility of the project, the first question that abounds is what is the purpose of the e-Naira. After thorough analysis and speaking to a few experts, it seemed that the CBN is launching the e-naira simply because it wants to provide “former” patrons of cryptocurrency with another option. The e-Naira, however, does not seem like a currency that will be traded and is simply a virtual replacement for the “physical” naira, but this time with a lot of limitations.

The main purpose Nigerians were after cryptocurrencies like Bitcoin was because they saw it as an avenue to make money. Cryptocurrency trading launched so many businesses in the country. Many of these businesses were worth millions of naira in few months and had so many people on their platforms. Many people, especially jobless youth, made a living from involving in cryptocurrency endeavours.

Nigeria is a country faced with so many challenges and somehow, these challenges are inter-connected.

A project like e-Naira would only work in a stable community where citizens have fully embraced cashless policies and there are systems in place to support its use. For instance, how does the average uneducated or a semi-literate danfo driver who plans to pay road-check agberos their tout-fares from the fares he gets from his passengers, do all these using the e-Naira?

If the plan of the CBN is to mitigate money laundering and terrorism by controlling the amount of money that can be sent and received using the e-Naira, these criminals are smart and will always find a way to get past it.

Let us examine China and the reason the country banned the use of cryptocurrency in the country. China banned the use of cryptocurrency as a way to control (their flourishing) economy. Provinces in China also complained about the mining activities which was affecting electricity generation in these provinces. Nigeria on the other hand had no reason to ban the use of cryptocurrency in the country as this was what was boosting her economy and providing job opportunities and a means of livelihood in its own seemingly inconsequential way.

One reason why the e-Naira is looking far away from feasible is that the “physical” Naira is suffering. This leaves us with the question of why issue a virtual one that is both expensive to issue and maintain? The e-Naira project will take a lot of money to materialize and more money to maintain, it would have been better if these limited funds are pushed into activities that could boost the naira and the economy at large.

If the plan is to use the e-Naira for trading activities just like Bitcoin and the rest of them, what are the plans to boost it when it suffers a dip like the dip that flagship cryptocurrency Bitcoin suffered these past months?

The interest in forex in the country is low, according to statistics. This is a result of the unfavourable policies surrounding the practice. There are a whole lot of other digital currencies that have less value than the naira and if they have not been able to thrive, what is the assurance that the e-Naira will be able to?

One more question that the CBN needs to ask is what the adoption rate of the e-Naira will be. With how popular Bitcoin and other cryptocurrencies were, there were still a large group of Nigerians that had their reservations about them. What sensitization plans does the apex bank have? How long would it take for e-Naira to become modus operandi?

Considering all these, do you think the e-Naira project is a feasible one?

The Reality

The reality is the e-Naira might become another abandoned project after a few months, or years if it lasts that long. This is because it does not solve any economic or societal problem. The Central Bank also had to outsource its technical partner for the project. If the apex bank had to employ the services of Barbados-based Bitt Inc., it only shows how not ready it is with the project. A project like the e-naira should be managed solely and strictly by the apex bank because it has to do with the country and is an issue of national interest. How long does the Central Bank plan on employing the services of Bitt Inc.? How sustainable will the expensive partnership be?

Another thing is people ran after cryptocurrency because it was not regulated and they had the sense of financial freedom that they always wanted. They also made profits using and trading with these cryptocurrencies. The e-Naira project has three tiers and a fourth option specially made for merchants. They all have limits and their own stringent rules in terms of usage which will not encourage people to use it, as many other options exist.

The e-Naira does not cancel the naira. People can still use the naira, which is deep-rooted in the system, for their day-to-day activities.

For cross-border transactions, the e-Naira might not be necessary, at least for now, because there are efficient options available and the e-Naira might have to work its way up to recognition.

Although the e-Naira could prove to be a game-changer by helping the apex bank limit black-market trading in the naira, bolster inbound remittances and reduce so-called leakages from state-funded social programs, it will still take commercial banks and Nigerians to adapt. One thing with Nigerians is that when provided with options, they always want the easy way out, the e-Naira is not the easy option in this case as they would want to pick what they are already used to.

What can the e-Naira offer if it proves to be useful?

One major thing that the e-naira could do is deepen financial inclusion, according to the Financial Derivatives Company (FDC). A June report by analysts at the FDC showed that the Central Bank Digital Currency (CBDC) could increase financial inclusion in the country.

The FDC, led by Bismarck Rewane, indicated that central banks around the world have either kicked off experiments and processes to introducing their digital currency or have shown interest in developing their digital currency. According to them, these banks have come to understand that cryptocurrency is here to stay and are developing their digital currencies to combat the threats and limitations that cryptocurrency is associated with. These limitations include price volatility, poor regulation, and these currencies being used as a way of evading tax and funding illicit activities.

In its report, the FDC said that “Nigeria is set to follow the global trend as it plans on launching its digital currency by year-end. Unlike crypto, digital currencies are regulated by central banks, thus giving them some level of control over the financial system. On a positive note, virtual currencies would facilitate smooth financial transactions and eliminate bottlenecks associated with the use of cash (mutilated notes, forgery, cash handling charges, shortages). It will also deepen financial inclusion and increase the velocity of circulation”.

The report however failed to capture the realities of the Nigerian market and the distrust that Nigerians have in the government and government-operated endeavours, bringing us back to where we all started.

What could have been if cryptocurrency was left to thrive?

The answer to this question is overt. Leaving cryptocurrency to thrive in the country would have, in its own little and indirect way, helped to boost the economy. Already established crypto businesses will see new rivals spring up and this is good for the economy. Leaving cryptocurrencies to thrive in the country could have helped spring up job opportunities; the world is pushing towards tech and a lot of skills and disciplines are becoming obsolete. Cryptocurrency thriving in the country would have helped drive innovation and healthy competition in the country.

Conclusion

The e-Naira might be a great project on paper, it might just be another project that is being launched too early or at the wrong time. It’ll be better if the funds and energy being directed at the e-Naira be pushed towards making the naira a strong currency and used to boost the economy.

The Central Bank might look ready to launch the e-Naira, in my opinion, it needs to do more research and design ways that’ll ensure that the project is self-sustainable and free from any form of external help. The Central Bank and the Government need to put some modalities in place to ensure that the e-Naira project doesn’t end up another abandoned project. The purpose and strategies of the e-Naira project need to be clearly defined, the goals and what is to be achieved with it be stated out.

The e-naira is not a bad idea in any way. There is just the fear that it will be another project that the country either does not need or one that will go down the drain.

When it launches on October 1^st, Nigeria could be the first African country to launch its Central Bank Digital Currency (CBDC). Other African countries like South Africa are still running experiments and plan to launch their digital currency soon.