Godwin Emefiele and CBN e-naira
Emefiele, CBN governor

By AYOOLA OLAOLUWA

After four years of researching and seeking perfection for its digital currency, the Central Bank of Nigeria (CBN) is set to launch the much anticipated e-Naira.

It would be recalled that the CBN had in February stopped commercial banks from accepting crypto-currencies, claiming the virtual currency was not yet insured or regulated in the country. It expressed worry about illicit flows of cash and the ability of crypto-currencies to travel in and out of Nigeria unannounced and untaxed.

Smarting from the knocks and condemnations that greeted the order, the apex bank, in a radical departure from its initial warning to Nigerians to stay away from the digital currency space, announced that it was considering producing its own digital currency.

The CBN said the digital currency, which was conceived as far back as 2017 was renewed and accelerated earlier in the year after it stopped financial institutions from processing crypto-currency-related transactions.

While disclosing that the currency would be launched on October 1, 2021, CBN said its decision followed the significant explosion in the use of digital payments and the rise in the digital economy with over 85 per cent of central banks around the world contemplating CBDCs.

After a long period of inactivity and troubling silence from the apex bank, which brought about doubts on the viability of the currency, the CBN, in a flurry, announced numerous decisions taken to ensure successful take off of the currency.

One of them is the release of drafts guidelines on e-Naira to participating banks on August 29. According to the draft document to banks seen by Business Hallmark, the e-Naira which is a legal tender and exchangeable in all the 36 states of the federation and the Federal Capital Territory (FCT), will have non-interest-bearing CBDC status, a transaction limit for customers and a value-based transaction limit.

The e-Naira has five features. They are Monetary Authority Suite; Financial Institution Suite; eGovernment Suite and the Retail Consumer Suite.

Under the Monetary Authority Suite, the CBN will be tasked with handing the first product component. These include issuing, distributing, redeeming and destroying the currency.

Other duties of the apex bank are storing data on a cloud server, as well as monitoring and analysing currency transactions.

On the other hand, the Financial Institution Suite is reserved for licensed financial institutions who will be able to request currency or issue stablecoins, manage digital currency across branches, Know Your Customers (KYC) and AML compliance capability.

While the eGovernment Suite is available to the government to process digital payments sent to and received from individuals and businesses.

Under the suite, merchants will provide low-cost payment and business management software, POS, remote payment solutions, online capabilities, transaction analysis and reconciliation.

Lastly, the Retail Consumer Suite contains features user-centred designs for customers seeking efficient user experience. The architecture will be expandable to enable innovation; features advanced privacy and security.

Apart from the main features of the program, the CBN also outlined the transaction cost for the e-Naira wallet.

While the digital currency infrastructure does not charge for user-to-merchant transactions and P2P wallet transactions, participating banks have the responsibility to promote and market the centrally issued digital currency as a cash alternative to existing and potential customers.

Banks will be allowed to invite all their customers to register for the e-Naira. Besides pre-generated codes, the banks are allowed to send invitation codes for onboarding to a specific list of selected customers. Onboarding will be done for customers who have a code assigned by their banks.

BH reliably gathered that participating banks have already verified and validated these customers.

The CBN, however, stated that the wallet provided by it was merely a stop-gap measure for meeting the deadline, noting that banks and other licensed operators will provide their own wallets since it didnt intend to compete against them.

The draft guidelines also indicate that there will be four tiers of wallets, Tier 1, Tier 2, Tier 3 and Merchant.

Customers on Tier 1 do not need to have existing bank account, but their phone numbers must be validated by National Identity Number (NIN). The tier also put cumulative balance limit at N300,000 and transfer limit at N50,000.

Customers on Tier 2, however, must have existing bank accounts and Bank Verification Numbers (BVN). While cumulative balance limit is N500,000 and transfer limit maximum of N200,000.

The premium tier, Tier 3, requires N5,000,000 cumulative balance limit and N1,000,000 transfer limit.

On the other hand, Merchant has no minimum balance limit, but a holder cannot transfer above N1,000,000 daily. Requirements needed to operate the account is however stringent. These include full KYC requirement and anti-money laundering and counterfeit terrorism regulation of the CBN.

Also on August 31, the CBN announced that it had engaged Bitt Inc, a Barbados-based digital financial technology firm as technical partner for the project.

According to the Director, Corporate Communications, CBN, Osita Nwanisobi, Bitt Inc was chosen through a highly competitive bidding process.

In choosing Bitt Inc, the CBN relied on the companys tested and proven digital currency experience, which is already in circulation in several Eastern Caribbean Countries.

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, Nwanisobi had stated.

Check on the firm’s website indicates that it utilises blockchain and distributed ledger technology to facilitate peer-to-peer (P2P) transactions with mobile money across a suite of software and mobile applications.

Meanwhile, high expectations, as well as doubts over the currency project have heightened, with most Nigerians who spoke with our correspondent not really understanding the workings of the currency.

Over 95% of respondents have the impression that the currency will operate like existing digital currencies such as Bitcoin, Ethereum, Litecoin and Binance.

“The CBN is only after what will benefit the government and wealthy Nigerians. A politician was even quoted to have said that e-Naira will help in fight poverty in the country.

“The clown should please tell us how that is possible. I plead with the CBN to allow banks work with crypto exchanges in the country for easy debit card deposit and withdrawals. Thats what we want and not e-Naira.

“The government said they were trying to protect us by banning crypto-currencies. Please, we are adults. We don’t need their protection. I used to make between $40 and $80 a day on bad days; I also lose up to $100. We know the risk. They should allow us to take it since it is our money”, declared Reuben Olamilekan, a trader in crypto-currencies.

However, BH’s extensive research on the CBN’s e-money shows that while the e-Naira is a digital currency issued by the government, Bitcoin, Ethereum, Litecoin, Binance and others are crypto-currencies.

A crypto expert in one of the money deposit banks said contrary to popular opinions, the new currency will not replace the physical naira but will act as a digital representation of it.

According to the source, the eNaira wallet is similar to a bank account and is created in the same way. He said the wallet will also be a separate account that is not connected to an already existing bank account.

Transactions, he said, will be possible between two parties that both have an eNaira wallet, which allows them to store, send, and receive eNaira.

“e-Naira on the other hand is not the same thing as Bitcoin. Unlike Bitcoin, which is a crypto-currency, the eNaira is a digital currency issued by the government.

“This difference will have a big impact on the stability of the currency. For instance, the eNaira will maintain the same value as the naira. Therefore, its value will not rise and fall the way Bitcoin does. It also means it is not something to invest in to grow your fortunes.

“The eNaira simply makes it easier to facilitate transactions digitally without needing to be backed by cash”, the source claimed.

Meanwhile, the CBN has said that e-Naira will strengthen the banking system and make it easier to comply with existing laws such as the anti-money laundering law.

The bank’s Deputy Governor Operations, Mr. Folashodun Shonubi, said the currency, apart from feeding the economy, will also provide greater value.

The central bank digital currency offers all the benefits of cash but in digital form. Every single digital currency is an electronic version of the cash, the legal tender. When you make a cash payment, settlement is done instantly; digital currencies entail the same promises and even more.

CBDC offers a safer option from the privately issued cryptocurrency which have been based on the possibility to enable cheaper transactions but have now been used for investment.

The intention is not to eliminate other forms of payment but to complement the current areas of payment options, thereby ensuring the stability of the payment system in the long run.

For banks in developing nations, it will enhance their liquidity, efficiency in national remittances and challenge the high cost of remittances as the world rebounds in the post-pandemic.

I am of the view that the CBDC promotes greater opportunities, and the central bank must be aware of the risks and mitigate them”, Shonubi said.

Also speaking, the Director-General, Securities and Exchange Commission, Mr. Lamido Yuguda, said that the digital currency would help improve the capital market when combined with vibrant inter-developmental policies, which would lead to financial inclusion, especially in the capital market.

People would want to position their digital currencies in such a way that many other users, beyond their borders, would use this particular currency, the SEC boss said.

A renowned economist, Dr. Biodun Adedipe, said the CBN listened to wise counsels by creating the e-Naira wallet.

If you want to encourage investment in that sector, you better encourage crypto also, but set the standard and think about creating the eNaira. I gave them the idea of creating the eNaira.

I told the CBN in a recent engagement that the way to go is to encourage that (e-Naira), because behind the crypto is a blockchain technology, and there is a whole lot it does beyond crypto.

If you want to encourage investment in that sector, you better encourage crypto also, but set the standard and think about creating the eNaira.

Once they set a framework for banks and anyone that will participate in that space, they would be setting the pace and not playing catch up”, said Adedipe, who is the founding partner of Biodun Adedipe Associates.

A fintech expert, Kalu Aja, said the eNaira, would give birth to a crypto clearing house and facilitate instant international transfers between local and international banks, as well as boost remittances when fully deployed.

There will be no need to wire money or hire a department to verify and track payments. Nigerian airlines, for instance, can send dollars to service their planes and CBN can create exporters window where instant remittance of export proceeds can flow back in a crypto currency.

However, a fixed Income trader at the United Bank for Africa (UBA), Dumebi Udegbunam, while hailing the move by the apex CBN, warned that cyber security and internet connectivity would be the issues in implementing the e-Naira.

Nigeria is faced with power supply and internet connectivity issues (we have one of the slowest internet and worst networks in the world) for the implementation to be as vigorous as it is intended to be.

Furthermore, there is the issue of cyber security. A recently released report showed that cybercrime will cost the world $10.5 trillion annually by 2025 in damages. In 2020 alone, the global loss from hacking and cybercrimes increased by nearly $ 1 trillion.

For West Africas most populous nation not to add to these indices when the e-Naira is implemented, we need to invest in cyber security or partner with the right people to guide that heavily, Udegbunam advised.

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