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eNaira: CBN, FinTechs Chart Course for Digital Currency

Godwin Emefiele
Central Bank Governor, Mr. Godwin Emefiele. Photographer: Chris J. Ratcliffe/Bloomberg.

October 17, (THEWILL) – The Central Bank of Nigeria (CBN), Financial Technology (FinTech) experts and key players in the digital ecosystem are discussing the operational modalities and regulatory frameworks for the novel Central Bank Digital Currency (CBDC), the e-Naira, awaiting imminent inauguration. Their aim is to identify and smoothen any rough edges to get the best of  the evolving technology, as the ‘new money’  sets to  disrupt the age-long traditional means of exchange.

The CBDC, a product of the digital age, is emerging as many Nigerians embrace the ‘mystery money’, crypto-currency, which has gained dominance in most parts of the world.  A crypto-currency  is a form of digital asset based on a network that is distributed across a large number of computers.

According to experts, there are between 12 and 13 thousand crypto-currencies in the world today. Many of them are decentralised networks based on block-chain technology – a distributed ledger enforced by a disparate network of computers.

A defining feature of crypto-currencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. It is this decentralised structure that allows them to exist outside the control of government and central authorities.  Hence, they are believed to be used for illegal activities such as money laundering, financing of terrorism and to cause exchange rate volatility.

The Nigerian government and the monetary policy authorities had over time cautioned against embracing crypto-currencies as a means of exchange.  Reports have shown that Nigeria is Africa’s largest crypto-currency market place and second only to the United States in Bitcoin trading volume in the world.  In February 2021, the CBN specifically issued a ruling, instructing all financial institutions to stop the facilitation of all transactions involving crypto-currencies.


Over the past 14 years, the Nigerian payment system has evolved significantly with extensive technological development backed by deliberate enabling regulations by the CBN. This has accelerated the development of novel financial products, services and channels all of which have placed Nigeria at the fore of the financial technological innovation race. It has also boosted the CBN financial inclusion programme.

According to the CBN Governor, Godwin Emefiele, “our robust payments system has continued to evolve towards meeting the needs of households and businesses in Nigeria. The high level of confidence in our payment system, between 2015 and 2020, has attracted the investment of about $500m in firms run by Nigerian founders”.

Emefiele, who spoke at the 31st Seminar for Finance Correspondents and Business Editors held in Enugu, with the theme, ‘Trends in Nigerian payments system: Regulating the Fintech digital playing field,”noted that financial traffic to digital platforms increased significantly in 2020 due to the lockdowns associated with the management of the COVID-19 pandemic.

“Expectedly, discussions have increased around the issue of the digital economy just as more opportunities have come up for financial institutions and other players within the payment ecosystem to innovate and provide more efficient options for payments and settlements.

“The Central Bank of Nigeria decided to introduce a central bank digital currency (CBDC), the eNaira, which would help in attaining our goals of fostering greater inclusion using digital channels, supporting cross border payments for businesses and firms as well as providing a reliable channel for remittances inflows into the country.”

Digital currency is a digital representation of value that can be transferred between peer-to-peer, stored, exchanged or traded digitally across borders without the need for intermediaries. The CBDC is a digital representation of sovereign money.

Digital currency is a function of Distributed Ledger Technology (DLT) – a technological infrastructure and protocols that enable simultaneous access, validation and update of records.

Digital currencies can broadly be categorized into two, depending on the issuer: Central Bank Digital currencies, and private digital currencies (Cryptocurrencies)

A ‘retail’ CBDC would be used like a digital extension of cash, whereas a ‘wholesale’ CBDC could be used only by permitted institutions as a settlement asset in the interbank market.

The marked difference between CBDC and crypto-currencies include Issuance, Legislation and Liability. While CBDC is issued by a monetary authority like the Central Bank who decides the rules, private digital currency has no central authority. Similarly, CBDC is backed by law and recognised as legal tender. The cryptocurrency is not a legal tender.

In terms of liability, CBDC is a direct liability of the Central bank unlike the private currency which is not. It can therefore be argued that crypto-currencies remain a free market commodity that anyone can engage in without regulatory control or restraint. This exposes it to huge risk.

By introducing the CBDC, Nigeria is basically following an irreversible global trend as overwhelming majority of Central Banks across the world have started to consider issuing digital currencies in order to cater for businesses and households seeking faster, safer, easier and cheaper means of payments. In fact, a handful of countries including China, Bahamas, and Cambodia have already issued their own Digital Currencies

This can be regarded as an underlying factor for the defined imperatives of CBDC which include the facts that the use of cash is declining both locally and globally. Secondly, Digital payments are rising very significantly, and private monies (Cryptocurrencies) seem to be filling a gap that Central Banks may have ignored. Consequently, it is therefore not surprising that 86 per cent of Central Banks are now considering CBDCs.

The introduction of CBDC hinges mainly on the following reasons:

•Macroeconomic Management and Growth

•Financial Inclusion

•Monetary Policy Effectiveness’

• Improved Payments Efficiency

•Revenue and Tax Collection

•Remittances Improvement

•Targeted Social Interventions

Despite the benefits, issues of regulation, security and privacy, financial losses, and operational lapses remained challenging, to virtually all stakeholders of the payment ecosystem, especially the Regulators.

It has been emphasised that the infrastructure of a CBDC system should be extremely resistant to cyber security attacks so as not to rubbish the labyrinth of regulatory frameworks created to get the best out of the evolving technology.

As Emfiele has noted, the post-COVID economy is predicted to be dominated by certain trends including a radically altered financial industry landscape as the accelerated shift towards digital financial services will attract more fintech investment and encourage competition to traditional financial institutions.

This calls for an Increased and intensive regulatory scrutiny on the part of regulators to proactively monitor developments and ensure the continuous safety and soundness of the financial ecosystem.

It is therefore imperative that Regulators must keep pace with these exponential developments and leverage new knowledge and technology tools such as Regtech (Regulatory Technology) and Suptech (Supervisory Technology) to enhance the efficiency and effectiveness of their mandate.