On October 25, 2021, the Central Bank of Nigeria (CBN) formally introduced the eNaira as a central bank digital currency (CBDC). The Central Bank of Nigeria (CBN) created the eNaira as a central bank digital currency (CBDC) that is a fully legal tender. Further, it is supported by the complete sovereignty of Nigeria. The eNaira was the second CBDC to be completely open to the public after the Bahamas. Similar to Bitcoin or Ethereum, people hold the eNaira in digital wallets. It is usable in financial transactions and transferable digitally. Better yet, sending the eNaira to anyone in the world is essentially free.
Expectedly, there should be trust in the eNaira as it is issued by the CBN. However, the CBDC is actually seeing a popularity struggle in Nigeria. The CBN is in charge of regulating the forex market and the financial market at large. However, there are currently no brokers licensed by the CBN or the Nigerian SEC. In this article, we will be exploring why the government-backed eNaira is facing a popularity struggle in Nigeria.
According to Bloomberg, less than 1.15 million Nigerians had used the digital currency as of October 2022. This accounts for about 0.5% of the nation’s population. The Central Bank of Nigeria (CBN) told reporters that only 1.4 million transactions have been made on the entire platform since it launched. This is very low compared to other mobile money payment systems.
In January 2022, the eNaira app had 694,000 downloads from 160 different countries. It also had more than 35,000 transactions as reported by Aljazeera. According to the International Monetary Fund (IMF), about 98.5 per cent of the currency wallets downloaded after the launch of the digital currency were abandoned. Data from the IMF also indicates that only 1.5% of downloaded wallets completed the weekly eNaira transactions. In terms of customer feedback, the eNaira Speed Wallet software has ratings of 2.9 on the Android Play Store and 2.2 on the iOS App Store. Both online and in real life, it appears that there are significantly more complaints than compliments. From what we could gather, the government-backed eNaira is struggling with popularity due to the challenges below.
A barrier to the adoption of the eNaira has been the limited or lack of access to internet infrastructure, particularly in rural regions. According to the Nigerian Communications Commission (NCC), 30 million individuals in Nigeria still lack internet connectivity as of October 2022. Nigeria has an Internet penetration rate of 51%. Despite a 51 per cent penetration rate, there are approximately 109 million Internet users. The high prevalence of mobile internet in Nigeria is one distinctive element of internet usage. Mobile devices account for over 84 per cent of internet traffic in Nigeria. People who may want to use currency and lack internet connectivity may be limited from using it.
Trusting the government
One key challenge that the CBN and the eNaira face is a lack of trust. Many Nigerians have an unfavourable opinion of the apex bank and its policies. This may be a result of actions such as the prohibition on cryptocurrencies, the closure of crypto-linked bank accounts, Forex manipulations, and the latest naira redesign. Consequently, people are hesitant to venture into eNaira as they fear financial loss. Specifically, those harmed by the crypto crackdown find it hard to trust the CBN. Building trust is essential for effective banking because it is based on trust between banks and savers. Unfortunately, the limited adoption of the eNaira underscores the difficulties it has in obtaining general trust.
Technical factors of eNaira
The current design of the currency poses a challenge to customers. The central bank will be able to see all eNaira transactions under the existing setup. Unfortunately, consumers may perceive the anti-laundering features incorporated into the eNaira as a breach of privacy. This is because the government is able to monitor all of the people’s money and potentially exploit that knowledge for control. Now this raises a serious issue with the eNaira which is centralization. This raises concern among potential users. Most designs of blockchains and cryptocurrency networks aim to restore power to the people through openness and transparency. In contrast, the design of the eNaira appears to keep as much government control as possible.
Final Thoughts about eNaira
The adoption of the eNaira is proving to be difficult. This necessitates a review of its value proposition and a consideration of Nigeria’s mobile money market. Additionally, there is a need to restore people’s confidence in the CBN. There is a need to form a positive relationship with the public to win people’s trust. Additionally, there is a need for a well-planned public-private partnership. This would ensure the safety and effectiveness of e-money/mobile money transactions.
The private banking sector’s contributions to financial inclusion may suffer depending on how the CBN controls the eNaira. Clearly, there is more work the CBN needs to do to drive the adoption of the eNaira. If successful, they could easily integrate it into the current mobile payment system. They could do this by making it act as a safer store of value for mobile money users through an integrated mobile CBDC wallet. Additionally, it can function as a bridge instrument to facilitate interoperability between mobile money operators. This is preferable to a model where the eNaira expands its own retail contact points outside of banks. This would mean the central bank replacing the private sector in the economy.