Nigeria’s central bank improves eNaira model to increase adoption
Nigeria's central bank improves eNaira model to increase adoption
The Rise and Challenges of the eNaira: A Look into the Global CBDC Landscape
Blockchain technology continues to revolutionize the financial industry, and the Central Bank of Nigeria (CBN) is leading the charge in Africa with its digital currency, the eNaira. While the eNaira’s journey has been met with both enthusiasm and challenges, it stands as a testament to Nigeria’s commitment to driving economic growth and financial inclusion.
From Conception to Remodelling: eNaira Story
The CBN embarked on its exploration of Central Bank Digital Currency (CBDC) in 2017, recognizing the potential benefits it could bring to Nigeria. After partnering with Bitt, a leading technology firm, the CBN successfully launched the eNaira in October 2021, making Nigeria the first African country to adopt CBDC.
The eNaira was expected to stimulate economic growth and boost Nigeria’s GDP by an estimated $29 billion over the next decade, according to former President Buhari. Furthermore, it aimed to enhance financial inclusion, enable cross-border payments, and promote the development of the nation’s digital economy.
To improve the eNaira’s adoption and functionality, the CBN has been proactive in taking steps to enhance the digital currency. In February, the bank began seeking new technology partners, and discussions with New York-based firm R3 were initiated for the development of a new model. Additionally, the CBN upgraded the eNaira app in July to facilitate contactless payments using NFC chips.
Not Enough Traction
Despite its promising potential, the eNaira has faced challenges in gaining widespread traction. However, a glimmer of hope emerged in February when the eNaira experienced a notable surge in transactions. Following a cash crunch in the country, transactions using the eNaira saw a remarkable 63% increase. Additionally, the number of e-wallets surged to 13 million, marking a twelve-fold increase.
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Yet, it is crucial to compare these figures with Nigeria’s estimated 200 million citizens to understand the eNaira’s current limitations. With only 13 million users, there is clear room for growth. The eNaira faces various obstacles, including the nation’s monetary policy, financial stability, legal and regulatory framework for CBDCs, cybersecurity and privacy concerns, and competition from other digital currencies. Additionally, Nigeria’s $220 billion informal economy relies heavily on cash transactions, presenting a significant challenge for the adoption of digital currencies.
To ensure the eNaira’s success, the new model must consider the unique characteristics and challenges of the Nigerian economic landscape. By addressing these concerns, the CBN can build an eNaira ecosystem that fosters trust and provides tangible benefits to all stakeholders.
Global CBDC Outlook
While Nigeria is making significant strides with the eNaira, other nations are also exploring and developing their CBDCs. China, with its digital yuan, leads the global CBDC race, having tested its currency in various scenarios, including the aviation sector. Australia, Thailand, and Russia are also actively pilot-testing their own digital currencies, while the European Central Bank is preparing for a pilot project for the digital euro. Furthermore, India and Brazil have announced plans to launch their CBDCs by 2024.
The global interest in CBDCs highlights their potential to revolutionize traditional financial systems, promote financial inclusion, and enhance cross-border transactions. However, each country’s unique economic, regulatory, and technological landscape necessitates careful consideration during the development and implementation of CBDCs.
The eNaira serves as a symbol of Nigeria’s commitment to embracing blockchain technology and driving economic growth. While the digital currency has faced challenges in gaining widespread adoption, it also represents an opportunity for the CBN to address issues surrounding financial inclusion, cross-border payments, and the development of the nation’s digital economy.
As the world continues to explore the potential of CBDCs, it is crucial to acknowledge the unique challenges and opportunities each country faces. By considering these factors and collaborating with key stakeholders, governments and central banks can pave the way for a future where digital currencies seamlessly integrate into the daily lives of individuals and businesses around the world.