CBN’s E-Naira Gamble

Is Nigeria putting out its Bitcoin? Will the Naira equal the value of the dollar? Shall we conserve our Naira on crypto exchanges? These and many other concerns need to be raised and addressed as the Central Bank of Nigeria (CBN) lays the groundwork to launch a digital currency for the country this October. Financial connoisseurs say that over the past two years, CBN has researched the technology and made portentous progression.
During the Monetary Policy Committee (MPC) meeting on Tuesday, 27 July 2021, the CBN Governor, Godwin Emefiele, confirmed the start date of Central Bank Digital Currencies (CBDCs) for October 2021. Since 2017, the CBN has been researching CBDCs alongside over 80 per cent of central banks, and only the Bahamas, Eastern Caribbean and China have enforced them. 
Emefiele claimed the economy was going digital and “cash cannot play in that space,” adding that “e-Naira which will represent the digital equivalent of cash will be used as fiat currency for transactions”. On how the e-Naira will work, the CBN boss stated: “If you choose to convert some of the Naira in your account to e-wallet or digital currency, we will support that.
“When this starts, the CBN will move some of the balances in CBN to those banks into digital currency. You go to your bank, you decide to move N2 million from the N10 million you have in your account to digital currency, they will debit your account and move it into your e-wallet. Then you have N2 million digital currency which you can spend across countries”.
According to Emefiele, “the use of cash is declining all over the world,” noting that “with the advent of digital currency, more and more people are adopting the use of electronic money to facilitate little commerce”. He believes that cryptocurrencies are private funds that are not regulated, so using them is a personal decision.
Recall that the Central Bank banned and warned players in the financial ecosystem against conducting any crypto transactions or facilitating payments for crypto trades in a circular dated 5th February 2021 and circulated to financial institutions. In addition, the CBN called on all financial institutions to immediately shut down the accounts of any individual or business involved in or operating cryptocurrency businesses. With the ban, Nigerians have turned to peer platforms that bypass these rules.
In support of that decision, the apex bank had previously issued an avowal that digital assets developed by unregulated and unregistered companies raised legal concerns. The CBN further says that crypto assets are used to support a variety of illicit activities, including money laundering and terrorism. Hence, the e-Naira is a step in the direction of satisfying people’s demands for a digital currency in this technology-driven age.
CBDCs are issued by the government. Whereas they may share similarities with crypto currencies (such as operating on a “blockchain”), they are not necessarily the same. Cryptocurrency transactions can be done with the aid of decentralised “blockchain” technology. With the CBN as the primary controller, the CBDC has a mainline topology. Moreover, cryptocurrency is not recognised as legal tender in Nigeria, but the CBDC will be acknowledged by the CBN as legal tender. That is, CBDCs are the direct responsibility of the Central Bank, but cryptocurrency is not the liability of the apex bank or its regulated institutions.
A CBN source revealed the stages of carrying out the plan, saying the first stage of the proposal would be assessment and socialisation, including setting goals. CBDC design is the next step, meaning the technical infrastructure required to purchase and manage digital currencies. The third stage is to undertake a feasibility and viability analysis using a proof of concept. CBN will then take training and information steps to introduce the CBDC. Ultimately, the apex bank will ensure that CBDC is fully implemented across the country.
We fully maintain any action to reanimate the Naira to enhance its global value in exchange and promote a rapid growth of the economy. However, several questions remain unanswered about the upcoming project. We are unsure what to expect, in particular how cross-border payments will operate; how the confidentiality and security of the digital currency will be guaranteed. 
The question is whether e-Naira will be treated as an essential national infrastructure to protect against operational and cybersecurity risks. Again, will there be a co-existence of traditional payment systems and the CBN Digital Currency to address interoperability risks that might be associated with the implementation?
For the policy to function effectively, there is a need for adequate awareness and education of the masses on its benefits. A further challenge in implementing this programme is the high rate of illiteracy. Many in remote villages are not financially literate enough to understand how cashless or digital transactions can work, particularly bearing in mind that those at the hinterland often lack entree to the banking system.
CBN has indexed the benefits of the digital currencies, including macro-management and growth, facilitating cross-border trade, financial inclusion, monetary policy effectiveness, increased payment efficiency, revenue tax collection, increased remittances, and targeted social interventions. Other benefits are lower costs of minting and printing physical currency, less fraudulent activity, circulation of counterfeit currency and armed robbery.
Although the apex bank has not expressed the flaws of this idea, the reality is that the proposed digital currency cannot be without obstacles. Some obvious defects are that quite a few Nigerians are not proficient in the use of technology, and most considerably, transactions may be subject to unrestricted monitoring.