On October 1st, the Central Bank of Nigeria (CBN) will introduce the eNaira. Let’s take a closer look at the eNaira, what it means for you, and how you may position yourself to benefit from its introduction.
What is the e-Naira?
The e-Naira will be a digit representation of the Nigerian Central Bank’s paper Naira currency. In Nigeria, the eNaira will be a “complementary” legal tender with the same exchange value as the Naira and will retain “parity of value” with the Naira. Holders of the e-Naira will not get any interest. The e-Naira is based on the open-source blockchain technology. You can’t have a duplicate or fake eNaira because it’s created on the blockchain. Each eNaira note will be one-of-a-kind.
Is the e-Naira a Stablecoin?
A stable coin is a cryptocurrency that has reserves backing it up. Reserves is the buzzword, but what kind of reserves are we talking about? Holding an equal amount of FIAT money, such as the US dollar, backs stable coins. FIAT refers to currency that is issued by the government but is not backed by any commodity, such as gold. As a result, a stable coin like USDT is linked to a currency, the US dollar, and its exchange value remains consistent. It’s important to note that the word “stable” does not mean “immovable.” Although the eNaira is technically linked to the FIAT Naira, is it stable? Well, not quite. The eNaira must be linked to a currency such as the US Dollar, Euro, or even the Yuan to qualify as a stablecoin.
How safe is the e-Naira?
Consider the e-Naira in the following scenario: you want to send N100 to an uncle who lives in a rural village without access to a bank branch. Buying mobile phone recharge cards in that amount, loading them onto your phone, then texting your uncle is a popular activity. Your uncle can then take his N100 mobile phone credit to any phone card retailer and get it for N95. Because he trusts the person performing the swap, the mobile store can redeem the call credits and pay cash; nevertheless, he has no way of knowing if the cell numbers are genuine.
By assuring all holders that each eNaira is a legitimate token, the eNaira is designed to eliminate this verification risk. The eNaira is built on the blockchain to ensure its legitimacy. Instead of buying phone credits, I’ll deduct N100 from my bank account, convert it to eNaira, and send it to my uncle. My uncle can spend the money right from his phone or move it to a bank account and get cash. Because the eNaira is difficult to counterfeit, any merchant is more likely to accept it.
How will I get the e-Naira?
The CBN intends to roll out the e-Naira in stages; first, it would issue the currency to financial institutions like as banks. The e-Naira will subsequently be sold to you by your bank. You don’t need a bank account to get eNaira if your transaction value is less than N50,000 per day; you can buy it using a NIN verified phone number. You’ll need a BVN in addition to a NIN confirmed phone number if you wish to withdraw more than N50,000 but less than N1 million each day. The CBN has very strong “Know Your Customers” rules in place for this process, with the goal of assuring all retailers of the eNaira’s safety and utility.
Why should I use the e-Naira?
When compared to FIAT, the eNaira has a lower cost. The account holder is not charged for daily transfers between accounts. The fact that traders will not be charged fees for withdrawals and deposits to and from their bank account is a huge incentive. Transaction fees are eliminated, lowering the cost of doing business while increasing security.
How will dollar remittance to e-Naira work?
The e-Naira will be incorporated into the CBN’s FX process, making receiving remittances to Nigeria easier. These transfers might be made directly from the CBN to the International Money Transfer Organization using e-Naira (IMTO). A Nigerian sending $100 to his uncle in the United States can debit his US bank account and credit $100 to an IMTO, which will purchase eNaira from their Nigerian bank. The $100 is quickly changed to e-Naira at a far reduced transfer charge, which is a big gain for the e-Naira.
What about inflation?
Inflation is commonly defined as too much money chasing too few things; however, not all inflation is thus straightforward. Due to the scarcity of coins in Nigeria, most merchants round up their rates to match the available currency, which is mainly notes. This rounding up causes a false price increase because it is other factors, such as selling eggs for N100 instead of N88, that generate the price increase. It is now possible to transfer the precise cash price in the marketplace, especially in rural areas, thanks to the e-Naira. As a result, the risk of “round-up inflation” is reduced.
The e-Naira can be the ECOWAS currency
Any two parties who may credit a Nigerian banking institution with equivalent cash can use the e-Naira. This means that a trader with UBA in Burkina Faso can use e-Naira to settle import bills from Gambia. This is the next step in the process. With eNaira as the basis offering, financial institutions and FINTECH companies begin to construct an ecosystem.
The e-Naira helps the financially excluded
The e-Naira will also bring the great majority of unbanked Nigerians into the formal financial market who do not have a bank account but do have a phone. Salary payments and payments for products and services can both be completed using the e-Naira. A plumber can receive payments on his phone, save them in his wallet, and use his phone to conduct business with any vendor.
What are the risks?
Data protection. Because the e-Naira is available online, as well as the BVN and NIN information, the likelihood of bad actors attempting to hack or obtain access to the data is quite minimal. The CBN’s method for minting and destroying eNaira tokens must be flawless.
Overall, it is beneficial to the Nigerian economy and represents a positive step toward a cashless society with lower prices and increased productivity.