In our business discussion this morning, we ask; is Nigeria ready for eNaira?
The planned introduction of the Central Bank Digital Currency (CBDC) eNaira by the apex bank in October, less than a month away, has been greeted with mixed feelings with many respondents describing the move as rather too hasty, untimely and a recipe for failure. Ibrahim Apekhade Yusuf in this report examines the issues.
To say that the Central Bank of Nigeria (CBN) is on the cusp of unveiling what may change the whole concept of money is certainly stating the obvious. With the planned introduction of the much hyped eNaira, which is the digital version of the naira in 1st October according to the roadmap designed by the apex regulatory body of bankers, something is bound to give.
Enter the eNaira
The CBN announced plans to launch its own digital currency later this year after it barred banks and financial institutions from dealing in or facilitating transactions in cryptocurrencies in February.
Announcing this new policy regime last Monday, the CBN Governor, Godwin Emefiele said the eNaira would operate as a wallet against which customers can hold existing funds in their bank accounts even as he assured that the currency would accelerate financial inclusion and enable cheaper and faster remittance inflows.
ABC of the eNaira
As to be expected, the CBN disclosed that the government will have access to the eNaira transactions done by Nigerians and businesses.
In a guideline sent to commercial banks, the financial regulator stated that the data will be stored on a cloud server, as the CBN will monitor and analyse the currency transactions.
The implementation process was broken down to five stages: Monetary Authority Suite, Financial Institution Suite, eGovernment Suite, POS merchant integration and Retail Consumer Suite respectively.
The Monetary Authority Suite detailed that the CBN will be the authorised issuer of the eNaira, as well as the sole distributor of the government-backed digital currency.
It was gathered that the central bank, which will be in charge of the first product component will be able to redeem and destroy the digital currency.
The licensed financial institution, under the Financial Institution Suite, can only request for the eNaira or stablecoins, and manage it across their branches – similar to the naira implementation.
The eGovernment Suite shares the role of the government in the process, which is to have access to the transactions done on the wallet which will be domiciled with the CBN.
The banks will later create their own wallet for the digital currency as the CBN had created the apex’s wallet to ensure it meets the deadline for the launch in October.
The detailed presentation sent to Nigerian banks on the eNaira project stated that it will have a transaction limit for customers, non-interest-bearing CBDC status, and an account value limit.
There are three levels to the CBN “Speed wallet” issued primarily to meet the October 1st deadline.
As a means to transact value, the wallet doesn’t compete with existing banks, but is awaiting the creation of wallets by banks and other innovators.
With the first tier, Speed Wallet can be used by anyone who does not have a bank account. However, users will have to submit a passport photo, a name, birth date and place, a phone number, and their address.
A N50, 000 limit is in place for Send & Receive, with the minimum requirement been the individual’s National Identity Number (NIN), which will be validated. A cumulative balance of three hundred thousand naira is fixed each day.
An account with an existing bank is required for users of Tier Two wallets. The user is limited to sending and receiving two hundred thousand naira per day with a Cumulative Balance of half a million naira daily. A Bank Verification Number (BVN) is the minimum requirement for this level.
Tier three allows daily transactions of a million naira, with daily cumulative balances of five million naira. In order to qualify, you need to have at least a BVN.
Those who possess this merchant level can send or receive a million naira daily. A merchant can move as much money as they want into their bank accounts, however.
In context, the CBN further disclosed, neither Merchants nor Customers using the wallet will be charged a fee.
The report stated that the eNaira is a legal tender for the entire country. It also mentioned that it will have non-interest-bearing CBDC status, a transaction limit for customers, and a value-based transaction limit.
How to register for the eNaira
The banks will also onboard customers on the digital currency platform by issuing a code to their verified customers or send invitation codes to specific customers.
The POS Merchants will assist the banks to drive the penetration rate of the digital currency, but persons without bank records won’t have access to the eNaira.
Aside from bank to customer exchange, there will be a peer-to-peer transaction with the eNaira, and users will not be charged for user-to-merchant transactions and P2P wallet transactions.
Meanwhile, the eNaira will not serve as a store of value for users, as it will be a form of payment neither will it bear interest for holders like Bitcoin, Ethereum and other cryptocurrencies.
The CBN has said after the launch of the eNaira project, banks and other licensed operators may provide their own wallets since it does not intend to compete against them.
Enter Bitt Inc.
Interestingly, the CBN last Monday announced that it had engaged Bitt Inc. as its technical partner for the launch of Nigeria’s digital currency.
According to the apex bank, Bitt was selected because of its leadership position and proven technical competencies in the industry.
“Bitt Inc. was key to the development and successful launch of the central bank digital currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021,” the CBN said.
From available information, Bitt was chosen through a vendor selection process in line with the Public Procurement Act conducted by seven departmental directors and a deputy governor of the CBN.
The 10 companies evaluated were said to have been graded based on technology ownership and control, implementation timeline, ease of adoption, platform security, interoperability, and implementation experience.
Nigeria and Belize are Bitt’s latest clients. In the next few months, the company would be helping to execute the first CBDC to go live in Africa and Central America.
The Atlantic Council which tracks CBDC across the world revealed that there are 81 countries in the world considering a Central Bank Digital Currency (CBDC), but only five of them have launched their CBDC. Of those five, four of them were designed and executed by Bitt Inc.
Founded in 2013 by Gabriel Abed and Oliver Gale, leading minds in the blockchain industry globally, the company was set up to provide infrastructure to support a digital financial ecosystem throughout the Caribbean.
Following its creation, the fintech company got its first major funding from an angel investor in 2014. In 2016, it concluded its Series A funding, where it closed a staggered investment of $16 million from American retail company, Overstock.
“Bitt, the Barbados based financial technology company has closed its Series A investment round with a staggered investment from retail giant Overstock.com of $16 million USD, placing the company’s valuation at $50 million US Dollars,” Bitt said at the time.
In October 2020, the Medici Ventures, a subsidiary of $3 billion worth Overstock, invested $8 million into the company and gained controlling stake in the Barbados-based fintech.
Overstock (Nasdaq: OSTK), which now has majority stake in the company, is a 22-year-old publicly traded company with over $200m invested in blockchain technology-related businesses.
It may be recalled that Abed has led presentations and engaged in discussions with the International Monetary Fund, the World Bank, the United Nations, the Commonwealth Secretariat. In April 2018, he was appointed as the special technology advisor to the David Burt, the premier of Bermuda.
In 2017, Bitt appointed Marla Dukharan, a leading Caribbean policy advisor, as its chief economist. In 2019, Dukharan was invited by the IMF to speak at a workshop on the company’s strides in CBDC and why other countries should adopt digital currencies.
After Dukharan’s appointment, Bitt immediately recognised a challenge and opportunity: while speaking to investors and central bankers across the Caribbean and beyond, a common question rings through: “Where can we get more information about CBDCs?”
To address this, Bitt created the world’s first CBDC hub, where it curates all sorts of verifiable information from leading research and financial institutions across the world.
Explaining the drive, Rawdon Adams, Bitt CEO, said: “We have created the CBDC Hub to be a one-stop-repository of key documents where all relevant information on CBDCs from across the globe can be consulted.”
CBDC policy documents from the IMF, World Bank, SWIFT, BIS, Bank of England and a host of other sources are found on this hub. The hub has since become a resource centre for many central banks across the world.
How China blazed the trail in e-currency
China is generally known as a world leader when it comes to money. About 1,000 years ago, when the whole world transacted money in coins, China took a step into the future, launching the world’s first paper currency. According to the Guinness World Records, the first known examples of paper currency were created in China during the Song Dynasty (AD 960–1279). They were known as “Jiaozi”.
In cryptocurrency, China also holds a primary position. As of 2019, China was responsible for mining over 75 percent of global bitcoin. That number has since dropped to 46 percent as China sought to create its own CBDC, but the country still has more than double the mining power of the US, which mines nearly 17 percent.
However, when it comes to the CBDC currency game, China was beaten to the market. According to the IMF, the world’s first CBDC was launched by the Bahamas in 2020. It is known as the sand dollar. After the sand dollar, the next CBDC to go live was DCash launched in partnership with Bitt.
While China is making progress as the world’s first major economy to launch a CBDC, it is now behind these two currencies in the Caribbean.
Welter of criticisms against eNaira
If the apex regulatory body thought the decision to introduce the eNaira would be warmly accepted by everybody, it is in for a shocker what with the welter of criticisms that trailed the CBN announcement few days ago.
Speaking with a cross-section of Nigerians from all walks of life, they stood pat with the CBN decision, stressing that it was rather too arbitrary a decision to make in such a very sensitive issue.
Firing the first salvo Mazi Okechukwu Unegbu, lawyer, arbitrator and stockbroker, who is currently Managing Director/Chief Executive, Maxifund Investments and Securities Plc, noted that the problem was much with the timing and not altogether a bad idea.
According to him, what the CBN did by that announcement was literally putting the cart before the horse.
Specifically, he said, “The one month timeline of operation as signified by the October launch date is faulty for so many reasons, especially because of the teething problems we have. The CBN by so doing is undermining a lot of risk factors which is not good for our financial system.
“While the world is truly going digital now, it is only good we are also taking such steps but what we are about to do with this rather novel idea is not worth the trouble, time and resources being devoted to it. First things first,” he stressed.
Unegbu, who boasts of over 30 years career in banking and finance having worked in prominent financial institutions including First Bank, defunct African Merchant Bank, Progress Bank (rose to become Chairman/Chief Executive), Broad Bank and Citizens Bank (as Chief Executive in 2005) and equally served as former president/chairman of the Council of the Chartered Institute of Bankers of Nigeria (CIBN), said matter-of-factly that, “The CBN needs to understanding the learning curve so as not to plunge the financial system into unimaginable crisis.”
Pressed further, he said, “There is a place of experience in some of these things. It’s a good product alright but we are not ready as a country for this kind of innovation yet. The first thing is for the CBN to address the existing challenges bedeviling the sector rather than trying to ape just about everything happening out there without proper understanding of how such system would work in our locale.”
Like Unegbu, Olusola Teniola, a technology enthusiast based in Lagos, argued that what is being introduced by the CBN is the digital fiat money that Nigerians already know. “It’s a good thing to the extent that it will further help to expand the financial ecosystem to a wide range of possibilities not available with the paper money.”
The erstwhile National President of the Association of Telecommunications Companies of Nigeria (ATCON) while noting that there is need to better understand the technology interface to go with the proposed digital currency lamented that there is a still a widening digital divide when you look at the issue of technology adoption in the country today.
To be able to drive everything around digital currency, Teniola, who is currently the CEO and board member of IS Internet Solutions (a Dimension Data company) in Lagos, Nigeria, emphasised the need for robust awareness as well as canvassed support for digital education and literacy among the populace, stressing that a lot is still been done manually in most institutions across the country.
“I understand the ubiquity of financial inclusion which the CBN says is at the core of the digital currency. But again, I wager that a lot still needs to be done before we can launch this. If you look at the way we actually manage the transactions with the POS and all. The payment systems are intercoupled so there is need to ensure that you build the right architecture for some of these things. I’m not sure the local markets down the streets are in the equation, so how does that support the much talked about financial inclusion in the first place? These concerns need to be considered as well.”
According to him, “A cursory of the entire workforce whether in the private or public institutions clearly shows that things are at still at their infancy stage when you talk of technology innovation. Our systems are not totally wired to achieve the most impact from these innovative systems which the digital currency portends.”
Short of dismissing the whole idea, the Ondo-state born technocrat said, he envisages a situation where the innovation may suffered low acceptance.
“Without any fear of contradiction I can tell you for a fact that the digital divide exist between the urban and rural areas. I think the timing is rather too soon because it only gives just less than 30 days, especially if you need to consider the fact that there could be reputational risks involved in some of these things. I think the system needs to be tested and fully accepted first,” he further reiterated.
A divergent view
In the view of Victor Ndukauba is Deputy Managing Director at Afrinvest West Africa, a leading independent investment banking firm with a focus on West Africa, he would rather Nigerians see this whole idea as something pleasant.
“I don’t know if I would say we’re not ready for digital currency. This is because anybody who uses the POS or mobile app or the USSD, is already attuned to digital currency as we know it.”
As to whether the time was ripe for a digital currency, he said, the apex bank from all indications already has everything worked out judging by the roadmap which seeks to achieve the launch date.
Expatiating, he said, “What the CBN seeks to do now is further promoting digital currency in a manner of speaking. Clearly, for me I see a lot of advantage in what the technology will bring. The existing payment system comes with a lot of cost. You have the N50 stamp duty and other associated costs which sort of excludes people from the lower rung of the ladder. People mostly deal on cash for almost everything from transport fare, purchase at the local market and all. The cost of transacting digitally is not expensive as such there can be greater adoption because of the potential benefits.”
Continuing, Ndukauba who had a brief stint at PricewaterhouseCoopers in 2005 before moving to Afrinvest noted that the flipside of the argument is if people would be able to convert their regular balances to the eNaira blockchain-backed wallet.
“This is purely a consumer product not a business-to-business product except the CBN mandates it for certain transaction so people can adopt it otherwise, I suspect the CBN will focus on the market where there will be a high level of awareness and adoption. I see Abuja and Lagos becoming the pilot scheme where certain branches of banks would test-run it before gradually being deployed across the length and breadth of the financial ecosystem.”
He was however quick to admit that there are still lots of questions requiring answers as to how the digital currency would be controlled by the apex bank because of the opacity of such system which may not easily lend itself to tracking and monitoring easily.
“I don’t think it’s something that is going to be compulsory even the cashless policy took quite a while before it caught on with the populace. Once people get used to it they will adopt it wholeheartedly. It is still early days.”
On whether the rate of adoption may be skewed in favour of the few elites who have what it takes to easily adapt to such innovative product, he said this is not possible.
“The data from the NCC shows that the level of data telephony in the country has improved incredibly compared to what it was few years ago. MTN has over 30 active subscribers who deal on data the same goes for the other networks so technology adoption and convergence is not going to be a problem at all,” he stressed.
One question most Nigerians are asking is whether or not the apex bank indeed has the capacity to manage the fallouts of this new innovation in banking given the fact that the policy initiative is yet to be fully understood. This sure, will be a litmus test for the CBN. Pray, can the CBN pull this off without any hassles? Time will tell.