How to use eNaira, Nigeria’s and Africa’s first digital currency
The Central Bank of Nigeria joined a growing list of emerging markets investing in digital money to cut transaction costs and boost participation in the formal financial system.
“Nigeria has become the first country in Africa, and one of the first in the world to introduce a digital currency to her citizens,” President Muhammadu Buhari said in televised speech at the launch in Abuja, the capital on Monday. “The adoption of the central bank digital currency and its underlying technology, called blockchain, can increase Nigeria’s gross domestic product by $29 billion over the next 10 years.”
The issuance of the digital currency, called the eNaira, comes after the central bank earlier in February outlawed banks and financial institutions from transacting or operating in cryptocurrencies as they posed a threat to the financial system.
What is eNaira?
The eNaira is a digital representative of the paper Naira currency issued by the Central Bank of Nigeria. It will also be a complementary legal tender in Nigeria, having the same exchange value as the Naira and maintaining a parity of value as the Naira. One interesting feature of the eNaira is that it will not earn any interest to the holder, and it is built on a blockchain open ledger technology. This simply implies that you cannot have a duplicate of eNaira or a fake version of it because each note will be unique.
If it involves money, then safety is of paramount importance. The eNaira is designed to solve any verification risk by assuring all holders that each eNaira is a valid token. This authenticity is achieved by building the eNaira block chain that makes it difficult or impossible to change, hack, or cheat the system. Thus, every retailer is likely to accept the eNaira because it cannot be forged or duplicated.
The CBN has planned a rollout in a tiered manner. First, it will issue the eNaira to financial institutions like banks. Your bank will then retail the eNaira to you. If your transaction value is less than N50,000 a day, you don’t need a bank account to get the eNaira; you can use a NIN verified phone number to buy eNaira. If you want to withdraw more than N50,000 but up to the daily limit of N1 million, you will need a BVN in addition to a verified phone number.
The CBN has very strict “Know Your Customers” protocols for this process. The aim is to assure all retailers of the safety and utility of the eNaira.
The eNaira has a low-cost advantage. The daily transfers between accounts are at no cost to the holder of the account and lower transaction cost is a massive incentive, as traders will pay no fees for withdrawals and deposits to any bank account. Thus, there will be no transaction fees but improved financial safety.
How will remittance to eNaira Work?
The eNaira will be integrated into the CBN’s forex process, and this is to make it easier to receive remittances to Nigeria. These transfers could be from the CBN crediting eNaira directly to the international Money Transfer Organisation (IMTO). So a Nigerian abroad sending $100 to his uncle can debit his US bank account and credit $100 to an IMTO, who will buy eNaira from the corresponding bank in Nigeria. Then the $100 is converted to eNaira instantly, at a far lower transfer fee. This is a real benefit and a significant advantage the eNaira will provide to customers.
The potential of the eNaira
Any two parties who can credit a Nigerian banking institution with corresponding currency can use the eNaira. This means a trader banking with UBA in Burkina Faso can settle his import bills from the Gambia using eNaira. This will be the next level of the rollout for financial institutions to build out an ecosystem with eNaira as the base product.
Furthermore, the CBN outlines that eNaira will bring the vast majority of Nigerians who have no bank account but have a phone into the formal financial economy. The eNaira can also be used for salary payments and payments for goods and services. So an electrician can accept payment on his phone, store them in his wallet, and make transactions with any vendor.
What are the risks?
The eNaira is online, the BVN and NIN information is also online, so the risk of malicious actors attempting to hack or gain access to the data is very low. Even more, CBN has assured a more secured process with eNaira tokens. Overall, it appears to be a positive progression towards a cashless society, with lower costs and higher productivity for Nigerians.