Benefits of CBN Newly launched e-Naira, first Nigeria’s Digital Currency

Central banks play an essential role in the economy by providing a robust, safe, efficient,

and inclusive payment system. They provide monetary and financial stability as well as

the safest form of money to the populace - Central Bank Money. As technology evolves

and advances, it is critical that Central Banks also evolve to continue to play their role

and Central Bank Money adapts to take advantage of these opportunities provided by

new technologies. Today is one of those moments where new technology offers the

central bank an enormous opportunity to play its role even better, thereby improving the

society and economy of their nation.

The Central Bank of Nigeria (CBN) began its CBDC journey in 2017, with extensive study,

consultations, identification of use cases and the testing of the CBDC concept in a

Sandbox environment.

Based on this preliminary work, the CBN is now ready to launch Nigerias CBDC – the

eNaira. The eNaira is the digital equivalent of the cash Naira. Put simply, same Naira,

more possibilities. The eNaira – like the physical Naira – is the official tender of Nigeria

and is a liability of the CBN. The eNaira and Naira will always be exchanged 1:1.

The CBN believes the eNaira will make a significant positive difference to Nigeria and

Nigerians, including:

• Improving the availability and usability of Central Bank money

• Supporting a resilient payment system ecosystem

• Encouraging financial inclusion

• Reducing the cost of processing cash

• Enabling direct welfare disbursements to citizens

Increasing revenue and tax collection

• Facilitating Diaspora remittances

• Reducing the cost and improving the efficiency of cross-border payments

The eNaira is simply a digital form of the Naira which also serves as a legal tender issued by the Central Bank of Nigeria (CBN). The tender aims to complement the Naira although digitally, by having the same exchange value as the Naira and maintaining a parity of value with the Naira. Further to this, the eNaira is built on a blockchain open ledger technology which will prevent duplication or creation of fake eNaira as each eNaira note will be unique. It is Nigeria's version of a Central Bank Digital Currency, which are digital currencies created and backed by central banks in several countries. Following an initial postponement on October 1, 2021, the eNaira was officially launched on October 25, 2021.

According to the design paper, one of the benefits of the eNaira is the possibility of direct welfare disbursement to citizens.

It highlights cross-border transactions as a benefit, saying the eNaira “gives Nigeria the ability to transact separately, thereby reducing the demand for correspondent banking services and SWIFT international financial messaging and payment systems for the clearing and settlement of trade.”

The Society for Worldwide Interbank Financial Telecommunication, SWIFT, is a payment network that receives and sends electronic payments internationally.

SWIFT transactions are expensive and take between one and four days to complete. The design paper says that the eNaira will speed up cross-border payments but doesnt state how fast it will be.

This will be possible because of the eNairas interoperability, one of the design elements mentioned in the design paper. This means it can work with central bank digital currencies (CBDCs) from other countries, making it useful outside the country and enabling easy cross-border payments.

However, only five countries — The Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada — have fully launched a CBDC according to Atlantic Councils CBDC tracker.

In terms of data and privacy protection, the paper says users can determine how their data is used and shared. However, the currency is designed according to Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) guidelines. This means data rights might not apply all the time.