Will Nigerian Banks Survive eNaira ?

The much anticipated unveil­ing of digital currency by the Central Bank of  Nigeria (CBN), also known as e-naira, according to analysts, is a major step in digital banking that will benefit consumers but not good for the banks. ­In this opinion report by Bamidele Ogunwusi, the impact of eNaira for Nigerian banks is x-rayed.

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The CBN, in a recent state­ment, said it has concluded plans to launch its Central Bank Digital Currency (CBDC) pilot scheme called the e-naira on October 1, 2021, with Bitt Inc., a finan­cial technology company that utilises block chain and dis­tributed ledger technology to facilitate secure peer-to-peer transactions, as a technical partner.

The e-naira is an electron­ic record or digital token of the naira to be issued and regulated by the CBN. It is expected to be a legal tender for the country and has a non-interest bearing status, as well as a transaction limit for customers.

Globally, there has been interest surrounding CBDCs among central banks, govern­ments and the private sector.

The concept, according to analysts at Coronation Re­search, primarily originated on the back of the popularity of cryptocurrencies like Bit­coin, Ethereum, among oth­ers, as it has also gained more traction following the onset of the COVID-19 pandemic and a global need to distribute as well as efficiently track eco­nomic stimulus funding, pre­vent illicit activity and illegal transactions.

As such, e-naira aims to bring the best of both worlds—the convenience and security of digital cryp­tocurrencies alongside the traditional banking system’s regulations.

Analysts at Coronation Research said, “We under­stand that to use the e-naira to transact, users need to down­load the speed wallet, validate their account on the wallet by using either their phone num­ber, national identity number (NIN) or bank verification number (BVN). In addition, users will be able to transfer money through peer-to-peer (P2P) transactions from their e-wallets to other wallet hold­ers and person-to-merchant/ business.

“The structure of the e-nai­ra is similar to a commercial bank account. However, it is non-interest bearing. Exclud­ing executing and managing digital currency tokens, the CBN would be able to gath­er, analyse and store data on e-naira transactions. The role of deposit money banks would be to take responsibil­ity for conducting KYC and AML/CFT compliance com­patibility on merchant e-naira wallets as well as monitoring illicit activity”.

For developing countries, Nigeria inclusive, a signifi­cant portion of the population remains unbanked. A CBDC such as the e-naira can assist with boosting financial inclu­sion across the economy giv­en that unbanked nationals often cite distance and trans­portation costs to banks as a major hindrance to owning a bank account.

Another advantage of the e-naira is the potential for simplifying monetary policy implementation by making it easier to channel money. Remittances also represent one of the most compelling usages for digital currencies by reducing the number of intermediaries, cost, opac­ity, and time required for cross-border payments. The e-naira could also eliminate some transaction costs, aug­ment expediency, and offer seamless payment services.

However, unlike most cryp­tocurrencies, the centralised nature of the e-naira means that the CBN would have over­sight on all e-naira accounts. Since 2014, at least 60 central banks have been exploring CBDCs. For instance, the Dig­ital Yuan project in The Peo­ple’s Republic of China is un­dergoing trials, with at least c.2bn Yuan (approximately US$300 million). In addition, countries like the Bahamas, Cambodia, Ukraine, and oth­ers have also started CBDC projects.

By eliminating interme­diaries, the e-naira could be a reliable low-risk, low-cost payment solution for con­sumers and businesses. In addition, the swiftness and ease of business transfers can increase economic activities, resulting in a broader impact on the economy.

Significantly, the e-naira could indirectly assist with expanding the Federal Gov­ernment’s tax net.

However, analysts at Coro­nation added that “the e-naira could threaten the ability of banks to collect fees from wire transfers, cheque issuances, and other payment services”.

Folashodun Shonubi, CBN Deputy Governor, Operation, hinted that the planned launch of e-naira in the country would enhance banks liquidity and promote efficient Diaspora remittanc­es as it will also challenge the current high cost of diaspora remittances in the long run.

Culled from Daily Independent.