The eNaira Makes History But Why Are Nigerian Banks Suddenly Getting Cold Feet?

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Nigeria is set to become the first African country to launch a digitised version of its currency today. The historic rollout of the ‘eNaira’ is an effort that Nigeria’s Central Bank (CBN) is calling a milestone in a “long journey.”

Africa’s largest economy joins countries like the Bahamas, Sweden, Cambodia, and South Korea as pioneers in the global race for CBDC – Central Bank Digital Currency.

Other countries hurriedly rushing to embrace the technological evolution of finances includes South Africa, which recently announced a trial for CBDCs for cross-border payments, as well as Ghana who is set to launch its e-Cedi digital currency sometime soon.

According to the CBN, the eNaira is expected to become a legal tender for all of Nigeria and is set to be accessible to both bank account and non-account holders. It will be accepted by all merchants and business outlets in the country. The CBN is touting the digital coin as the “same Naira” with “more possibilities.”

Users wishing to trade in eNaira simply need to download the respective app from the official website – titled Speed by the CBN – which then acts as a digital wallet through the smartphone it is installed on.

But as Nigeria enjoys the launch of its digital coin today 25 October 2021, The Guardian reports that the rollout is causing a renewed sense of anxiety and unease in Nigeria’s banking sector.

The sector reportedly fears the rollout of the digital coin could unsettle the country’s banks as it comes with a hefty disintermediation risk – which means that users of the eNaira will no longer have to go through the banks themselves to access their money, it just exists on their digital smartphone apps.

eNaira, like other CBDCs and indeed other cryptocurrencies, uses blockchain technology to facilitate peer-to-peer transactions, removing the need for intermediaries like banks, which also removes the need for banks, altogether. A sentiment reportedly shared by some commercial banking executives in Nigeria who feel “extremely worried that a widespread adoption of eNaira could reduce the volume of businesses executed by banks and transaction revenues,” according to an insider source for The Guardian.

However, the same source says that it is currently too early to predict if the eNaira’s launch will in any way negatively affect the volume of bank transactions.

But as banks get cold feet, Ken Ife, a professor of economics and an international finance expert weights in that if the banks don’t adopt the eNaira, or currencies like it, it could spell their doom. He added that bankers will either smartly retool their operations to embrace the technology revolution or “be left behind in the process.”

“Technology is the definition of all means of production and exchange; there is no limit. Blockchain technology has come to stay. It is about what you can do with it. It will affect the banking sector like every other sector. It will render the traditional model of banking that comes with high costs useless. The banks will either embrace it in a constructive way or they will be overtaken by the revolution,” Ife warned.

The CBN says it has designed the eNaira to complement existing banking products and services and assures that it “will not destabilise existing systems.” The CBN is also expected to link users wanting to trade in eNaira with commercial banks for compliance with Nigeria’s Anti-Money Laundering and Combating the Financing of Terrorism, (AMT/CFT) guidelines.

“The eNaira payment system will be compliant with AML/CFT guidelines to ensure the integrity of the financial system. To achieve this, CBN has adopted an account-based CBDC,” the apex bank said.

“To facilitate this process, customers will have the option to choose their preferred banking partner during the onboarding process and customers will be linked to that bank. The linked banks will as such be responsible for performing AML/CFT checks on the users and ensuring overall compliance,” the CBN said in the concept note.

Currently, however, there are no insights into how commercial banks will make any revenues from their role in the implementation and compliance of the eNaira. Especially since the eNaira requires users to actively convert funds and transfer them from their bank accounts to their digital wallets, which is an app maintained by the CBN.


By Luis Monzon
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