Recently, the federal government of Nigeria announced that it would launch its digital currency on the 1st of October, 2021.
Since the announcement, there have been mixed reactions to the initiative. While many people see it as a welcome idea (which is of course is) others are not so certain about the success of the digital currency in the long term and for some people, they do not have a clear grasp of what the e-Naira is. For the sake of the people in this latter category, let me provide quick information about the e-Naira.
What Is The e-Naira?
The e-Naira is a digital currency backed by the federal government and the Central Bank of Nigeria, which will enable Nigerians to carry out financial transactions efficiently, mainly without the involvement of an intermediary — that is, financial institutions. The e-Naira — a Central Bank Digital Currency (CBDC) — will simply be a digital version of Nigeria’s Fiat Naira. It will also have the same value as the physical Naira notes and will be regulated by the Nigerian government.
What Are The Similarities Between CBDCs And Cryptocurrencies?
Central Bank Digital Currencies (including the e-Naira), share few similarities with cryptocurrencies. Both CBDCs and cryptocurrencies are:
- Digital assets and enable online transactions
- Developed the blockchain technology
- Not dependent on financial intermediaries
Any Differences Between The Two?
Of course, there are significant differences between the e-Naira and Cryptocurrencies, and they include the following:
- Cryptocurrencies operate on a decentralized system where nobody controls or regulates the industry but the e-Naira will operate on a centralized system and will be controlled by the federal government
- Cryptocurrencies are unstable in value while the e-Naira will be a stable digital currency, as its value will be determined by the country’s Fiat currency.
- The e-Naira will not provide users the opportunity to store funds with the hope of making profits as it will not fluctuate like Bitcoin and other cryptocurrencies.
So, What Is So Special About e-Naira?
Although the e-Naira may not have some of the advantages that cryptocurrencies have, it does possess a few positives. People who do not own bank accounts can have an e-Naira wallet and store their funds without having issues. It eliminates the idea of financial institutions serving as intermediaries to store cash for Nigerian citizens. With the e-Naira, it would become easier to carry out cross-border transactions and the cost of financial transactions will reduce significantly (since there will be no intermediary involved).
My Verdict On The e-Naira
Although the e-Naira comes with a few advantages that will enable Nigerians to carry out financial transactions efficiently, I do not think it will turn out to be a huge success in our economy or the digital space. Here’s why:
Firstly, many cryptocurrency enthusiasts in Nigeria still begrudge the government and the CBN for placing a ban on crypto-related activities in February this year. Even though Nigerian users still rank as one of the activities in the global cryptocurrency space, the ban had a drastic impact on some traders or platforms. Many crypto enthusiasts will see the announcement of the government-controlled e-Naira as a strategy by the government to eliminate cryptocurrency activities in the country. While that is almost impossible, it could be feasible, judging from the erratic and drastic decisions the federal government has made in the past.
Additionally, Nigeria still faces the problem of illiteracy, power failure, lack of internet coverage, and many other problems that may not support the efficiency of internet-based transactions. People may struggle to use their e-Naira wallets to carry out transactions whenever they wish.
Furthermore, Nigerians who are actively involved in the digital space and are well versed in how digital currencies operate may not see the necessity of storing their funds in a stable wallet whose Fiat currency consistently loses its value in the financial market. They would rather take the risk of investing their funds in fluctuating cryptocurrencies, with the hope that a rise in prices will provide profits.
In conclusion, it is not clear what impacts the e-Naira will have on the Nigerian economy. However — while it may not necessarily become a dominant form of transaction in the country — it may still add a few positives in terms of efficiency and utility.
