Planned Nigerian e-naira discourages cryptocurrency investors

In February, the central bank told banks and financial institutions that “facilitating payments for cryptocurrency exchanges is prohibited”. The bank moved to introduce the e-naira, which will count as a cryptocurrency and will be pegged to the physical naira, after the country’s vice-president, Yemi Osinbajo argued that cryptocurrencies should be regulated, not banned.

Introducing a digital currency in the context of the ban is “counter-productive”, says Toritse David, an investment banking analyst at Standard Bank in Lagos. She sees expectations of further naira weakness as a motivation for cryptocurrency use.

Naija247news reported that Nigeria’s central bank tapped Caribbean based Bitt Inc as a technical partner in its bid to launch its own cryptocurrency, the “eNaira”, the Central Bank said on Monday. The Central Bank announced plans to launch its own digital currency later this year after Nigeria barred banks and financial institutions from dealing in or facilitating transactions in cryptocurrencies in February.

Central Bank Governor Godwin Emefiele has said the eNaira would operate as a wallet against which customers can hold existing funds in their bank account. In a statement on Monday, Emefiele said the currency would accelerate financial inclusion and enable cheaper and faster remittance inflows.

Barbados-based Bitt earlier this year led development of the Eastern Caribbean Currency Union’s “DCash”, the first digital cash issued by a currency union central bank. But the International Monetary Fund (IMF) cautioned that countries seeking to adopt the digital currency should be wary of its disadvantages.

Emefiele said the Central Bank Digital Currency (CBDC) would bring about increased cross-border trade, accelerate financial inclusion, and lead to cheaper and faster remittance inflow. He said the digital money, also known as cryptocurrency, would lead to easier targeted social interventions, as well as improvement in monetary policy effectiveness, payment systems efficiency, and tax collection.

CBN’s Director, Corporate Communications Department, Mr. Osita Nwanisobi, explained, in a statement, that the e-Naira project had been a long and thorough process for the apex bank following its resolve in 2017 to digitise the local currency after extensive research and exploration.

Nwanisobi said CBN’s decision was in line with an unmistakable global trend in which over 85 per cent of central banks were considering adopting digital currencies in their countries.

The CBN pointed out that the selection of Bitt Inc. from among highly competitive bidders was based on the company’s technical competence, efficiency, platform security, interoperability, and implementation experience.

The statement said, – “In choosing Bitt Inc. the CBN will rely on the company’s tested and proven digital currency experience, which is already in circulation in several Eastern Caribbean countries.”

Emefiele had recently hinted that a national digital currency would be launched in October. The apex bank had also said the digital currency would be treated as a critical national infrastructure to protect it from operational and cyber-security risks.

Further clarifying the e-Naira project, the CBN governor had said, “You have some naira in your account and you chose to convert part of your naira into a digital wallet by way of a digital currency. We will support that.

“If, for instance, you have N10 million in your account. Of course, when this starts, the CBN will move some of the balances of banks with CBN to those banks in digital currency. So you go to your bank, you have N10 million and you want to move N2 million out of your N10 million into a digital currency. They’ll debit your account and move it to your wallet of N2 million digital currency, which you can spend across countries.”

Emefiele added, “So we think that this is a noble idea and we are not the first… many other central banks are at advanced stages of revealing their own digital currency.

“Our own digital currency, which is tagged e-Naira, will certainly come into operation, by the special grace of God, by October and we are working very hard for this.”

He also said, –

“We believe that transactions will be cheaper and more efficient, as there will be less to complete. The Nigerian economy, just like the rest of the world, is going digital and cash cannot play in that space. Therefore, e-Naira, which will represent the digital equivalent of cash, will be used as the fiat currency to effect transactions. And in terms of financial inclusion, we believe that with over 30 per cent of bankable adults still outside the financial system, the ability to have offline payment through our e-Naira initiative will bring most of them into the formal financial sector.”

According to him,” The use of cash is declining everywhere in the world, just as in Nigeria and with the advent of digital commerce, which is booming in the country, more and more people are adopting the use of electronic money to facilitate digital commerce.

“So our e-Naira is a digital representation of cash, which means as a fiat currency, it is a fiat currency that will be just as acceptable as the physical or analogue naira.

“We recognise the need for wide stakeholder engagement and education to be able to create awareness for the use of e-Naira as alternative to cash to further drive towards a cashless society.”

Meanwhile, just like the CBN had warned previously, IMF sued for caution by countries seeking to use crypto-assets as their national currency. The multilateral institution reiterated that the demerits of adopting crypto-assets as national currency outweighed its merits.

The Washington-based institution gave the advice in a blog post, titled: “Crypto-assets as National Currency? A Step Too Far.” It acknowledged that the new digital forms of money had the potential to provide cheaper and faster payments, enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers (…)


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