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The eNaira: What You Should Know

 

The Central Bank of Nigeria has announced guidelines for the eNaira, which it intends to roll out starting October 1. This comes a few weeks after it revealed plans to launch a digital currency for Nigeria.


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Nigeria isn’t the only country in the world that’s creating a digital currency. Several dozen other nations are taking this route too. Like the CBN, monetary authorities in those nations are concerned that cryptocurrencies may drive a large number of financial transactions beyond official regulatory control.

Countries across the world are now exploring Central Bank Digital Currencies (CBDC)—digital money controlled by central banks –as a response to the growing influence of cryptos. The eNaira is one example of a CBDC.

Following the announcement by the CBN, the public has raised myriad questions about the eNaira—what it is, how it will work, and how it compares to cryptocurrencies.

This article aims to answer some of those questions by explaining what’s presently known about Nigeria’s new digital currency.

What The eNaira Is

As explained above, the eNaira is a Central Bank Digital Currency (CBDC). Like cryptocurrencies, it’s a digital currency. Other similarities with cryptocurrencies include that it’s based on blockchain technology, and will be held in electronic wallets.

But there are differences. Unlike cryptos, the eNaira will be controlled by a central authority, the CBN, which will be able to monitor transactions involving it.

Why The CBN Is Launching The eNaira

We’ve hinted that the eNaira is the apex bank’s response to the growing popularity of cryptocurrencies. But the regulator also says that it aims for the currency to aid financial inclusion, improve payment efficiency, and improve revenue and tax collection.

The CBN’s Partners In The Project

Nigeria is delivering the eNaira in partnership with Bitt Inc, a financial technology company based in Barbados. Earlier this year, Bitt Inc had developed ‘DCash’, a digital currency, for the Eastern Caribbean Currency Union.

The CBN has also consulted with crypto and blockchain technology experts from within and outside Nigeria on the eNaira project.


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The Government’s Control Of The eNaira

The CBN will be the authorized issuer and distributor of the eNaira, and will be able to redeem and destroy units of the currency.

Data from transactions involving the eNaira will be stored on a cloud server. The data will be accessible by the government, and the CBN will be able to monitor and analyze transactions in the digital currency.

Because the government has visibility of eNaira transactions, it could be better able to plan and execute tax policy.

The Rollout Of The eNaira By Banks

The CBN has shared guidelines for the rollout of the eNaira with banks. Formal financial institutions will play a key role in the implementation of Nigeria’s digital currency project.

Banks will enable their customers to access the eNaira by sending them invitation codes. Merchants will also deepen the penetration of the currency by helping the members of the public to obtain it.

Nigerians will be able to hold the eNaira in digital wallets, whether they have a bank account or not. However, there may be upper limits to the daily balances and transfers on these wallets.

Limits To Consumer Wallets

Consumers will be able to store, send, and receive eNaira on their digital wallets.

However, there may be limits to the amount of money held on these wallets daily. These limits will depend on the wallet tier they hold; there will be three wallet tiers.

Tier 1 wallets will be for people who don’t have a bank account but possess a National Identification Number (NIN). They will have a daily transfer limit of ₦50,000 and a balance of ₦300,000.

Tier 2 wallets will be available to people who have a bank account with a linked Bank Verification Number (BVN). They will have a daily transfer restriction of ₦200,000 and a balance of ₦500,000.

Holders of tier 3 wallets can send and receive up to ₦1 million daily. There are no limits on the amount they can hold in their wallet.

No Transaction Costs

An advantage of the eNaira is that users don’t incur any transaction costs. Regular electronic transfers of the naira have typically come with a cost paid to banks and payment processing platforms. However, the eNaira won’t attract costs for business or peer-to-peer exchanges.

This is significant for foreign remittances. International money transfer companies charge fees for processing transfers made between Nigerians and people abroad. With the eNaira, transfers can be done directly, and no fees will be incurred.

The eNaira Is Primarily A Medium Of Exchange

Unlike cryptos, the eNaira will not earn interest for its holders. Its value won’t rise or fall in the same way that cryptocurrencies do, so it won’t be an object of speculation. It will not protect its users from inflation. The value of the eNaira will be pegged to the regular naira.

The eNaira will primarily aid financial transactions.

Final Words

There’s still a lot to be learned about how the eNaira will work. But there are high hopes among Nigeria’s monetary authorities that it will drive positive change across the country’s economy. In time, we’ll know whether those hopes are founded.

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Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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