By Amechi Ogbonna
Last year’s launch of a new payment system by the Central Bank of Nigeria (CBN) through the Central Bank Digital Currency (CBDC), stands as one giant step in the nation’s monetary policy architecture that would not be forgotten in a hurry by many observers, considering the direction the global economy is heading to in recent times.
Indeed, armed with lessons from the rapid growth and expansion of blockchain technology and emerging crypto currency culture, central banks around the world have began creating digital currencies(CBDC) in virtual format of their fiat currencies or digital token of the official currencies issued and regulated by respective monetary authorities if only to ensure some level of control and oversight.
This become necessary considering that without some measure of official regulatory oversight, cryptocurrency fever might soon overrun and disrupt monetary policy framework in most jurisdictions. Cryptocurrency is a virtual currency that exists digitally only and has no central issuing or regulating authority overseeing its utilisation. It uses blockchain technology to authenticate transactions. Blockchain is a decentralised technology spread across many computers that manages and records transactions which does not rely on banks to verify transactions, but used as peer-to-peer system that enables users send and receive payments from anywhere around the world.
As of 2021, it was estimated that global crypto ownership was rated at an average of 3.9 percent, with over 300 million crypto users worldwide.
The market is also projected to grow from $910.3 million in 2021 to $1,902.5 million in 2028 at a CAGR of 11.1 percent during the 2021-2028 period.
As at 2020, the global cryptocurrency market size was valued at $1.49 billion and is projected to reach $4.94 billion by 2030, growing at a CAGR of 12.8 percent from 2021 to 2030.
Overall, a rising need for operational efficiency and transparency in financial payment systems, the spike in demand for remittances in developing countries, increasing need for data security, could be listed as some of the key factors driving the growth of the global cryptocurrency market.
For instance, Paxful, a leading peer-to-peer exchange platform, recently announced that Nigeria has become its largest market with a total traded volume of $1.5billion to date.
Amidst the upsurge in the use of digital payments and a tendency toward a digital economy across the world, the CBN’s decision to launch its own CBDC on October 25, 2021, can then be seen as indeed the fallout of the global trajectory in which over 85 percent of Central Banks are considering adopting digital currencies in their countries.
At the momentous launch event in October last year, Governor of the Central Bank of Nigeria Mr Godwin Emefiele, had listed the benefits of the Central Bank Digital Currency (CBDC) to include increased cross-border trade, accelerated financial inclusion, cheaper and faster remittance inflows, easier targeted social interventions, as well as improvements in monetary policy effectiveness, payment systems efficiency and tax collection.
Emefiele said the building of a robust payment system that would provide cheap, efficient and faster means of conducting payments for most Nigerians had always been the focus of the apex bank. He then pointed out that the growing pace of digitisation globally makes itimperative for Nigeria to leverage digital channels to fullfil this objective.
Emefiele stated that transaction volumes using digital channels more than doubled between 2018 and 2020, rising from N1.3 billion to over N3.3 billion financial transactions in 2020, stressing that the development should naturally puts a humongous systemic burden on the apex bank with regard to the eNaira, as not only the driver of the project, but also as the the owner of the product.
In less than four weeks since its launch, Emefiele said, “almost 600,000 downloads of the e-Naira applications have taken place. Efforts are ongoing to encourage faster adoption of the e-Naira by Nigerians who do not have smartphones.”
In its assessment of Nigeria’s standing on the usage of the CBDC, a recent report by PwC 2022 report, Nigeria’s eNaira, which is Africa’s first digital currency, was ranked number one in the global retail CBDC space, as its app downloads increased from 700,000 to 756,000 as at end of December 2021.
This was as the same PwC ranking of 2022 CBDC Global Index and Stablecoin Overview, revealed that over 35,000 transactions have been conducted on the platform, giving Nigeria’s eNaira a retail index value of 95, while the country was ranked number one in Africa.
This position was recently validated by the West Africa Chief Economist and team lead at PwC Nigeria, Mr Andrew Nevin, who said: “CBDCs will transform the payment system, as low value-added transactions become possible in a costless and secure way for everyone.
The success could also catalyse more complex and transformative CBDC uses, including Blockchain Identity Management, Land Registry, and Supply Chain Verification. As each of the use cases develops, we can bring more people into the economic and financial system and lift tens of millions out of poverty.”
But not withstanding the country’s impressive run on the continental global CBDC scale, thereare still some huge concerns that the country has more milestones to cover considering its over 79.3million bank customer base.
Nigeria had 79.3 million active bank accounts in 2019. Compared to 2016, the number of clients increased by approximately 15 million. Today the number of bank customers is yet to attain the 100million mark.
Even out of this number, not upto 50 per cent can conviniently onboard the CBDC platform on their own due to the lack of appreciation of the benefits of the digital currency to their business and everyday living.
This lethargic disposition leaves no one in doubt that the monetary authority obviously need to do more to onboard reasonable number of bank account holders in Nigeria’s commercial, merchant and lower level financial intermediaries including fin-techs to enable more people to sign on.
While the potential benefits of the CBDC may not be apparent to many at the moment, a good communcation strategy in languages that are understandable to the vast majority of Nigerian bank customers can easily bring in more people on board the CBDC.
Commenting on how to get more Nigerians to sign on to the Central Bank of Nigeria digital currency Mr Obinna Anyanwu, Chairman, Financial Services, at the Lagos Chamber of Commerce and Industry (LCCI), said “the digital currency introduced by the Central bank of Nigeria is work in progress.
The rate of adoption is still low. We have other digital channels that people use for transactions like transfers through phones, payments through ATM, debit cards and a large number of people still walk into banks to make transactions.
According to him, “the digital currency is supposed to enhance and çomplement what is already on ground . It is just a part of the nation’s payment ecosystem.
“With some restrictions that CBN places on it, it means that once you start transacting digitally, your money will remain digital, you cannot withdraw cash. If you have a digital naira you can’t withdraw cash, you will continue to use it on a digital level, which is not a challenge. The good thing is that it’s naira for naira, just like your physical naira in your pocket. It’s the same value.
Anyanwu further stated “You will have to download the application and create an account, how many Nigerians have that time. People also want to adopt a wait and see attitude, thereby waiting for testimonial from other users of the currency. A lot more Nigerians are careful these days because most of them have been defrauded. They want to be sure of the safety that is why they are sceptical.” But as time goes on, I think most Nigerians will overcome these challenges and key in.
But beyond all these argument, CBN must have to deepen the use of the digital currency through strategic communication and enlightenment .
“For me today it seems the CBN has gone to bed after the initial launch and introduction of the CBDC in October last.
There is not much awareness about the currency through adverts to inform and educate the populace. The use of personalities and ambassadors to influence the behaviour of Nigerians on the currency is important.”
From the look of things, it appears the CBN merely introduced a digital currency to checkmate the use of cryptocurrency after which it has done little or nothing to help the product attain a critical mass among bank customers and account holders”. He said
The LCCI member further noted that the “CBN needs to define the rule and own the space.
It needs to go beyond just launching the currency, but needs to ensure people adopt it and start using it so as to become a way of life for businesses. It’s a right way to go and safety on its use needs to be put in place.
For his part, Chairman, SMEs Group, LCCI, Daniel Dickson-Okezie, said “the introduction of the CBDC raised the hopes of Nigerians . In about one month, there was over 600,000 download of the e- naira application . This was followed by reports of millions of Nigerians who could not complete the download . This has brought to question the technological competence, efficiency and security of the platform.
Today, less than 20percent of members of the OPS have embraced this new e naira for obvious reasons. The CBN needs to expands its information and awareness machinery to enable Nigerians to know about its existence , how it works and it’s benefits. The use of OPS organisations like BMOs like LCCI and other organisations to expand awareness cannot be over emphasised.”
“The first important thing is for the CBDC to take off. This has happened, but with a combination of information and digital infrastructure, the impact will be felt overtime. Presently, the impact is yet to be seen.”
He called for intense creation of national awareness about what the CBDC is all about which he said was very important.
He also advocated a continuous upgrade and improvement of the digital infrastructure which will go a long way to ensuring increased confidence on the platform.
Also commenting, Mr Frank Onyebu, chairman, Apapa branch of the Manufacturers Association of Nigeria ( MAN), believes that the e-Naira, CBN’s digital currency has not been impactful despite all the hype that went with the launch over six months ago.
In spite of the expected benefits particularly with regards to boosting cross-border trade as well as enablement of a better macroeconomic policy formulation, Nigerians have failed to embrace the initiative.
Downloads have been minimal, especially amongst businesses.
“The reasons for this are not far fetched: inadequate trust of and lack of consistency in government policies. The fact of the matter is that the average Nigerian does not sufficiently trust the government to fully embrace policies such as this. Everyone is playing the waiting game, not knowing if the government will reverse itself in no distant future.
People are also aware of the risks associated with digital currencies and do not want to be burnt.
The government needs to convince Nigerians that their fears are unfounded. Some sort of incentives have to be provided. Massive campaigns need to be mounted through various media with the aim of convincing businesses to buy into the initiative.
More so, government agencies and parastatals must fully embrace e-Naira to show the private sector and other stakeholders the leeway. Gradually businesses would have to embrace the initiative. Ultimately certain government transactions would be done exclusively using the digital currency. “I dare say that once Nigerians see the system working seamlessly with little or no risks the government would have a hard time controlling the influx of people into the digital space.
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