At a ceremony in Lagos on October 25, 2022, Central Bank of Nigeria (CBN) officials, government representatives and business leaders gathered to mark the one-year anniversary of the eNaira, Nigeria’s official digital currency and the first of its kind in Africa. At the ceremony, the central bank announced that the eNaira had been used in some 700,000 transactions worth around $18.3m since its introduction in October 2021.
“The eNaira is expected to enhance financial inclusion, support poverty reduction, enable direct welfare disbursement to citizens, support a resilient payment ecosystem, improve availability and usability of central bank money, facilitate diaspora remittances [and] reduce the cost of processing cash,” said Godwin Emefiele, governor of the CBN, during the ceremony. Since its debut year marked only the first phase of the planned rollout, the period ahead may see more activity.
Key Goals
The CBN and the Securities and Exchange Commission (SEC) have overlapping responsibilities for digital currencies in the country. This has created some confusion in the past, as the CBN expressly forbids the use of cryptocurrencies, while the SEC has allowed digital asset token offerings, initial coin offerings (ICOs), security token ICOs and other blockchain-based products. However, the commission announced in November 2022 that it would not yet be considering cryptocurrencies in its push for digital assets, with Lamido Yuguda, director-general of the SEC, telling reporters that the commission was “looking at digital assets that really protect investors”. In May 2022 the SEC issued guidelines that would apply to all issuers attempting to raise capital through digital assets.
Despite the CBN’s restrictions, cryptocurrency is still a significant asset in Nigerian finance, and its popularity is linked to structural elements, including the exchange rate system, which features several different official and unofficial rates. Traders and investors tend to look to cryptocurrencies when searching for ways to hedge against any exchange rate-related risks (see overview).
Indeed, one of the eNaira’s advantages marketed by the CBN is that it should maintain value better than the actual naira, which was down some 40% year-to-date against the US dollar as of October 2022. This would have an impact on areas such as remittances, which accounted for around 4% of GDP in 2020.
Another advantage is its potential to expand banking penetration, improve transparency and cut costs by helping Nigeria become a cashless society, The eNaira is also peer-to-peer and universal, so anyone can hold it, and it does not yield interest. One of the eNaira’s goals is interoperability with other central bank digital currencies to enable cross-border payments between such currencies and increase domestic payments.
Building Up
Between October 2021 and August 2022 some 840,000 people downloaded the eNaira app, with 270,000 active users by the end of that period. The CBN aims to boost that number 10-fold by August 2023, according to Emefiele. Indeed, this first year marked phase one of the eNaira’s rollout, with the project to culminate in offline eNaira payment solutions, cross-border payments and full interoperability.
Further developments with the digital currency will be welcome news for backers, as uptake has been low to date. Surveys revealed that 0.5% of Nigeria’s 218m people had used the eNaira as of October 2022, even though an estimated 35% of Nigerians between the ages of 18 and 60 had made some type of cryptocurrency transaction in the first 10 months of 2022.
Efforts to boost the digital currency’s uptake are under way. A 5% discount is being offered to drivers and passengers of motorised tricycles who use the eNaira, while the one-year anniversary of its introduction was accompanied by a major advertising push by the CBN. The central bank also announced that it would be improving its user experience after some initial hiccups. The CBN and the SEC both anticipate further growth opportunities in the future once the eNaira’s value against other cryptocurrencies becomes more clear.
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