Nigeria Launches Digital Naira
The Central Bank of Nigeria (CBN) has finally launched the central bank digital currency (CBDC), commonly known as the e-Naira. Come read our blog to learn more about Nigeria's expectations for the e-Naira, as well as the potential risks the currency poses.
In October 2021, the Central Bank of Nigeria (CBN) launched the central bank digital currency (CBDC), or e-Naira.
Digital currencies are purely electronic and have no physical form. With blockchain technology, it is possible to handle peer-to-peer payments without the need for an intermediary through a distributed ledger. That makes digital currency payments faster and cheaper than traditional banking methods.
Nigerian Hopes for the e-Naira
The Nigerian president, Muhammadu Buhari, hopes that the e-Naira will boost Nigeria's GDP by up to $29 billion over the next decade. Authorities also hope that it will help curb the black market trade of the Naira, improve financial oversight, and lower inflation.
In February, the government banned the trading of cryptocurrency, stating it caused too much insecurity among citizens. The government hopes that the e-Naira will boost financial services inclusion and improve the Naira's value as a store of currency. For much of 2021, the Naira was in decline.
The e-Naira will have the same value as the physical Naira. The currency uses an app, the Speed Wallet, to store digital money. The Speed Wallet is available for download from the Google Play Store and the Apple App Store. Citizens will be able to purchase the e-Naira through financial institutions and transfer it into their e-wallets.
The CBN anticipates that the digital currency will:
- Increase the number of Nigerians who have access to financial services;
- Enable the government to directly disburse welfare to citizens more accurately and at a lower cost;
- Facilitate diaspora remittances and improve cross-breed payments;
- Reduce the cost of transactions;
- Make Central Bank money more available and usable to the public;
- Improve revenue and tax collection.
Potential Risks of the e-Naira
Although there are substantive benefits to digital currency, it comes with some risks, such as:
- If the e-Naira becomes popular, it could jeopardize the stability and operations of traditional financial institutions. If Nigerians shift their savings into the e-Naira, banks won't have the deposits to make loans or other services;
- A purely digital currency carries the risks of data breaches, theft, corruption, or destruction. If a glitch happens, it can have significant implications for the economy;
- There is the risk of the CBN focusing its resources on the e-Naira and not having enough time or resources to solve the underlying issues of the Naira;
- The adoption of the e-Naira will depend upon access to the internet and tech-savviness. Those without access to the internet or an inclination towards technology may feel left out.
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