eNaira postponement throws up unresolved issues

Clara Nwachukwu

A few hours to its official launch, the Central Bank of Nigeria (CBN), announced the postponement of its much-anticipated variant of the central bank digital currency (CBDC), also called, eNaira.

A statement from the Director of Communications, Osita Nwanisobi, explained: “The CBN took the decision to postpone the launch, which had been initially planned to coincide with the Independence anniversary, in deference to the mood of national rededication to the collective dream of One Nigeria.”

Assuring that there is no cause for concern, he said the CBN and other partners are dedicated to ensuring a smooth process for the “overall benefit of the customer, particularly those in the rural areas and the unbanked population.”

But the fact that no new date was announced for the launch arouses further suspicion, especially as the CBN Governor, Godwin Emefiele, had gladly informed that “On October 1, Nigerians should be able to download the eNaira App from either Google PlayStore, or Apple AppStore to onboard themselves, fund their eWallet using their bank account or with cash at a registered agent location, and conduct transactions such as transfers and purchases at merchants’ outlets that have onboarded.

Sudden Twist

Even the banks were taken unawares, as many had started urging their customers to leverage their electronic platforms for easy access and use.

In fact, up till close to 10pm yesterday, Stanbic IBTC in a personalised electronic mail (email) to its customers reminded them of the planned launch of the eNaira today.

The mail reads in part: “The Central Bank of Nigeria (CBN) recently announced plans to launch a digital currency known as the e-Naira. The e-Naira, a Central Bank Digital Currency (CBDC), would be regulated by the CBN and only exist in digital and electronic forms.

“On this note, we wish to inform you that we have made the e-Naira available on our digital banking platforms for easy access and use. This new capability will be available on our platforms in readiness for the CBN’s official launch in Nigeria on Friday, 01 October 2021.

“The e-Naira is a digital currency issued by the Nigerian Government with the same value as fiat naira and can be used just like the physical currency. However, this will exist electronically, and transactions can be made and received from any part of the world. The CBN e-Naira wallet will operate just like a regular bank account operates, albeit enabling and facilitating the exchange of value digitally and electronically only.

“At Stanbic IBTC, the e-Naira will be accessed on USSD, Internet Banking, and the Mobile App. Topping-up and cashing-out of e-Naira and crediting of wallets will be available on the Mobile App and internet banking platforms, while for USSD, customers will only be able to top-up the e-Naira and credit their e-wallets.”

Pending suit

Many have wondered if the postponement of the launch may be connected with a lawsuit filed against the CBN at a Federal High Court by ENaira Payment Solutions Limited.

The firm, through its lawyers, accused the CBN of trademark infringement, warning it to desist from using the proposed name, claiming that it had incorporated the name, eNaira, since April 2004.

In a cease and desist letter sent to the CBN, the company stated its intentions to stop the launch of the eNaira.

The letter reads: “Our client has approached the Federal High Court in Suit No: FHC/AB/CS/113/2021 between ENAIRA PAYMENT SOLUTIONS LIMITED vs CENTRAL BANK OF NIGERIA to seek a restraining order including an order to restrain CBN from proceeding in the launch on 1st October 2021.”

Many outstanding issues

The adoption of a digital currency was a bit of a ding-dong globally, until FaceBook announced on June 18, 2019, of plans to launch Libra, thereby forcing central banks to accept the reality of the issues around monetary policies and liabilities.

Conversations that ensued birthed the idea of central bank digital currency (CBDCs), a fiat currency that will be regulated and backed by authority.

So far, only five countries, mostly in the Caribbean have fully launched a digital currency, including the Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada.

According to Axios Media, about 81 more countries representing over 90% of global gross domestic product (GDP), are now exploring the development of their respective CBDCs as at July end.

Back in Nigeria, the CBN put into motion plans to launch its own digital currency by October 1, just as seven days ago, China’s central bank declared all transactions of crypto-currencies illegal, effectively banning digital tokens such as Bitcoin, warning that it “seriously endangers the safety of people’s assets.”

The CBN has taken all into consideration in the ongoing implementation of the eNaira, and that’s why we have taken a lot of painstaking steps to make sure that whatever will come out of it fits our economy and gives us greater value.

Prior to China’s central bank concerns on the safety of assets, the Chartered Institute of Bankers of Nigeria, in one of its CIBN Dialogue Series, themed: Central Bank Digital Currencies: Insights for the 21st Century Banker, looked at all the nuances associated with the CBDC, with particular reference to the eNaira in the context of the Nigerian environment.  

Held on September 9th, the dialogue, which attracted over 700 participants, indicating the high level of interest across various stakeholders, in which resource persons tried to provide different perspectives  – academic, technology, legal, infrastructure and operation to enhance financial inclusion.

In his keynote address, Deputy Governor, Operations Directorate, CBN, Foloshodun Adebisi-Sonubi, represented by Director, Payments, Mr. Musa Jimoh, agreed that the benefits and risks of CBDCs are complex.

He said this is because the issues are encompassing, covering financial, legal and technical considerations and the interplay among them. “Each country, including Nigeria, must consider the specific circumstances and benefits of introducing the CBDC and the possible costs.”

He also noted that inter-operability of infrastructure is very key, for which a robust industry-wide risk management framework has to be put in place to safeguard any associated risk.

“The CBN has taken all into consideration in the ongoing implementation of the eNaira, and that’s why we have taken a lot of painstaking steps to make sure that whatever will come out of it fits our economy and gives us greater value,” he had assured participants.

Issues in perspectives

For the Director-General, Securities and Exchange Commission (SEC), Lamido Yuguda, also a former Director, Reserves Management, CBN, expressed full support for the digital currency, saying it will be “very good for the capital market.”

All these are really daunting issues, and we have to open up our minds in terms of security, service and support, regulatory concerns, implementation of privacy, as there is a possibility of a run on implementation approach.

From the operators’ perspective, Executive Director, IT& Operations, Access Bank, Adeolu Bajomo, stressed the inevitability of adopting electronic money. “With the fourth industrial revolution, one of its characteristics is this digital drive; everything being disrupted, and everything going digital, and money naturally will take its course in the long run… It’s not surprising that we moved from cryptos now into CBDCs.”  

Bajomo also urged the monetary authority not to “constrain it to just CBDC or eNaira. We must look at our wider ecosystem such that if we structure and create this in the right way, as there are issues around mining, and security, we can provide deep research and build our capabilities.”

He also touched on the kind of infrastructure to be deployed for the operation of the eNaira – centralised, semi-centralised or totally decentralised. “Of course, within retail banking there are considerations as well in terms of module, because if anybody moves their liabilities into the eNotes, what happens to those liabilities and what happens to the capabilities of commercial banks, which have to track deposits to lend out back to the economy and make it thrive, provide funding to SMEs?”

He therefore warned that “All these are really daunting issues, and we have to open up our minds in terms of security, service and support, regulatory concerns, implementation of privacy, as there is a possibility of a run on implementation approach… The key point here is that the CBDC cannot be an instrument of control; if it is, it will fail.”

For the academia, Prof. Olayinka David-West (Information Systems), Associate Dean, Lagos Business School (LBS), Programme Lead, Sustainable and Inclusive Digital Financial Services Initiatives Management Information System, said major issues revolve around three areas. These include: monetary in terms of financing, currency management, and fraud and counterfeiting; maintaining stability and integrity of the financial system and technology and interoperability.

On the legality of the eNaira as medium of exchange, Jimoh assured that Sections 18, 19 & 20 of the CBN Act confers the right on the apex bank to issue notes and coins in the mode, modality and form it deems fit.  

He also disillusioned anyone who believes the eNaira will be interest-bearing, saying: “It is non-interest bearing, because if you keep your naira/physical cash in your house, it doesn’t attract any interest. The eNaira is the same thing as cash; it is designed to be 1eNaira = N1, the same parity.”

As a result, Bajomo argued that “If value moves toward eNaira that value is not central, opinion is that it could adversely affect the retail banking as we know it today. Retail banking is about gathering liabilities and lending those liabilities out and if those liabilities disappear then the banks may be forced to increase interest rates to attract liabilities, which will then be passed on to the wider economy in terms of people borrowing the money.”

Given all the issues that are outstanding, David-West called for cautious optimism in the adoption of the eNaira, noting that it is a journey.

The question now is whether the CBN took all of these perspectives into consideration while planning for the digital currency, or perhaps it may have taken on too much, too soon.   

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