Nigeria’s Next Step
Nigeria, the country with one of the highest cryptocurrency adoption rates in the world, is the first nation in Africa to launch its own central bank digital currency, otherwise known as CBDC. It goes by the name of ‘eNaira.’ President of Nigeria, Muhammadu Buhari, launched it with the slogan “same Naira, more possibilities.” Following in Nigeria’s footsteps, other regions and countries, such as the Eastern Caribbean Currency Union and China, have begun to conduct their own CBDC pilots with fellow citizens. Due to the size and complexities within the Nigerian economy, their leap into CBDC has become of great interest to the outer world, including the likes of central banks.
Is this the new ‘norm’ for Nigerians? As a country that is already fixated on cryptocurrency, eNaira can give Nigerians the possibility to extend their wealth through buying and selling crypto, forex trading, and more. Read on to find out more about why Nigeria decided to launch its own CBDC and its impact on the country since 2021.
Why CBDC?
So, what is eNaira? Like cash or coins, eNaira uses blockchain technology similar to Ethereum and Bitcoin. Just like them, eNaira is stored in what is called ‘digital wallets’ that can be used at any time, with no virtual costs to anyone around the globe, as payment transactions both virtually and digitally. However, some differences are important to be aware of. Firstly, eNaira’s features have firm access rights controlled by central banks. Secondly, unlike the other cryptocurrencies previously mentioned, eNaira is not a stand-alone financial asset. Instead, it is a digital form of a national currency, drawing value from the official and physical Naira.
eNaira was designed to provide multiple kinds of benefits for Nigerian people, some of which will only grow stronger when the eNaira is used more widely and has the support of regulatory processes and systems. Some of the key benefits are as follows:
1. Increase Financial Inclusion in Nigeria
As it stands, the eNaira wallet is only available to those with a bank account. As it progresses, the coverage is expected to expand to anyone without a bank account but who has a mobile phone. In Nigeria, it is reported that a large amount of the population doesn’t have bank accounts, with it spanning 36% of the adult population there. Allowing those with mobile phones to access eNaira means that financial inclusion will increase, and eNaira will help to facilitate more effective and direct transfers. With this in mind, 90% of the population will soon be able to use eNaira. Using cryptocurrency could change the lives of many Nigerians, as today, the country struggles with having valid bank notes to use across the country.
2. Facilitation of financial settlements
Remittances are known as the act of sending money. They are usually made via international transfer operators, for example, Western Union. They come with fees that range from 1-5% of the overall value of the transaction. Nigeria is one of the top remittance destinations in sub-Saharan Africa. Thanks to eNaira, it is expected to make the costs of remittance transferring lower. This means that the Nigerian diaspora can utilize eNaira to remit funds back to Nigeria from money transfer operators. Instead, they can transfer the remitted funds back to the Nigerian recipients straight into their wallet without any extra charges.
3. Reduce Nigeria’s informal economy
Nigeria is largely known for its informal economy. With the implementation of eNaira, you will be able to track your payments a lot more smoothly. The currency is based on each account, meaning that, unlike other kinds of token-based cryptocurrencies, you will easily trace all of your transactions. Once eNaira has gained more widespread popularity and becomes a full function of the Nigerian economy, it will allow for stronger transparency for informal payments. Both formal and informal businesses will benefit from using it, providing more financial inclusion and leading to greater consumption across Nigeria.
Similar to digital currencies around the globe, eNaira comes with some risk. There are still questions surrounding the overall strength of the cybersecurity that comes with it, and not all Nigerian people have flocked to use eNaira yet. Because this new currency is based on digital technology, the creators will need to standardize and protect the users from any operational associated risks.
Thankfully, the Nigerian authorities are on hand to manage any risks that might arise as the eNaira is becoming more established in Nigerian life. For example, financial integrity problems. Any kind of problem that may arise from this due to people attempting to use eNaira for money laundering will be controlled using an identity verification tracker. This helps to verify the user, using details such as ID numbers, registration, and more, to be able to accurately track a person’s overall access to the eNaira account.
