Financial inclusion is a popular global issue in the twenty-first century. There are currently an estimated 2.3 billion adults who lack access to financial services, 1.7 billion people who are underbanked, and difficulties linking small and medium-sized firms to the financial system. Countries have developed digital currencies as a result.
President Muhammadu Buhari unveiled the eNaira in October. He said in his address that the introduction of a central bank digital currency (CBDC) could boost economic activity and raise Nigeria’s GDP by $29 billion over the following ten years.
Digital currencies were initially developed to verify Bitcoin, the most well-known cryptocurrency. They were created as a means of centralizing record-keeping without requiring consent from a third party, such as a bank or regulator. It enables users to record, track, and validate peer-to-peer transactions.
Multiple users that have access to the data verify the records. All activity is secure and fixed, and a permanent record of all transactions and user information is maintained.
The CBN stated that it would reduce the expense of currency management when it was launched. By eliminating middlemen like banks or clearinghouses, the use of digital currencies will significantly reduce the cost and time associated with cross-border transactions. Transactions will move more quickly, enhancing the velocity of money circulation, which will spur economic growth.
However, it appears that Nigerians are not interested in these advantages 19 months later.
The Challenges
Violent protests and pleas for a deadline extension were provoked by the allegedly short repatriation period and the CBN’s failure to supply enough banknotes of the newly designed naira. Both rural and urban sections of the nation saw these protests.
The period of cash crunch in Nigeria taught us that Nigerians are not keen on the CBDC. At least not yet.
The CBN claimed it hoped to use the e-Naira to facilitate day-to-day transactions between business owners and their producers and customers around the country because half of Nigeria’s estimated 200 million population lacks access to bank accounts.
Unsurprisingly, a lot of people are looking for alternatives. Despite CBN prohibitions on cryptocurrency transactions, peer-to-peer networks were being used by 33.4 million Nigerians as of April 2022, according to cryptocurrency exchange Kucoin.
In contrast, approximately 13 million e-Naira wallets have been downloaded, according to Godwin Emefiele, the governor of the Central Bank. Notably, this occurred when the nation was under a cash constraint. As soon as banknotes were reintroduced, many Nigerians probably rushed back to cash.
Legacy Issues and the digital currency
The existing “confidence and trust deficit emanating from legacy issues” is causing problems for Nigerians. Nigerians are less inclined to use another unstable currency that cannot hold its value. This will remain the case as long as the country’s digital currency draws its value from the Naira. The e-Naira appeared to be a disaster even before it began since the Naira continually lost value.
Moreso, demand is essentially what drives value for digital currencies today. Naira is not being sought after outside of Nigeria. This cannot be the foundation for the country’s digital currency.
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