Nigeria’s President Muhammadu Buhari Monday officially launched the Central Bank-backed digital currency project, eNaira – part of efforts to boost cashless transactions, as well as dim the growing interest in cryptocurrency.
Recall that the CBN announced the project after it barred commercial banks from facilitating cryptocurrency transactions in the country earlier this year, citing a need to curtail financial crimes.
So, what is eNaira? Is it another form of cryptocurrency? Below are four things you need to know about the eNaira.
1. The eNaira is not cryptocurrency:
So, a lot of people are curious to know if this is the same as a Bitcoin or Ethereum or any other crypto assets. The answer is an emphatic no.
According to a circular issued by the CBN after the launch of the currency on Monday, “the eNaira is the digital form of the fiat currency, (Naira), issued by the CBN in line with Section 19 of the CBN Act.
It is a direct liability of the CBN, a legal tender and will form part of the currency in circulation. It will be at par with the physical naira, (that is 1:1).”
Unlike the typical cryptocurrency such as Bitcoin, the eNaira is centralised with the backing of the authorities, which is the CBN here. So, it is just another legal tender.
While blockchain is the underlying technology behind the eNaira; it is not decentralised and cannot be privately controlled like Bitcoin. It also means, unlike the crypto, you cannot trade on the eNaira as an asset class.
2. The eNaira will not lead to oversupply of Naira and cause inflation:
Nigeria’s inflation rate is at a worrisome 17.59% high, although it has been declining over the past 3 months.
So, many people are genuinely concerned about the additional money supply through digital currency. However, this will not cause any price hike as it does not translate into an extra money supply.
At every point in time, the CBN has a particular amount of Naira it wants to be in circulation. Out of the total money in circulation, there is a quota allotted to coins and notes.
So, it only gets an allotment from these cash components. So, in essence, the eNaira instead of leading to an additional money supply will lead to a decrease in the amount of cash in circulation.
3. The eNaira will reduce cost of remittance:
So, the CBN has constantly touted the ability of the eNaira to facilitate cheaper remittances.
One of the major sources of foreign exchange for Nigeria is remittances, so, many wondered if using eNaira for remittance will not lead to FX shortage. But there is no cause for alarm. The digital currency only comes into remittances as an option for the payment of remittance fees.
According to the CBN, the eNaira will make remittance charges cheaper by about 8%.
4. The eNaira will not be insured:
So, what happens if hackers break into its tech and steal users’ money? Well, unfortunately, the eNaira is not insured by the Nigeria Deposit Insurance Corporation, NDIC as is with your naira with the deposit money banks. Still, there is no cause for alarm since it is directly under the CBN and it is still the only institution empowered by law to print the Naira.
So, God forbid, anything happens to the money in your eNaira wallet, the CBN will simply replace it.
About the author:
Jonah Solomon, the author of the Book: First Generation. The book’s electronic and paperback versions are available for purchase on Amazon or amazon.co.uk. The eBook is also available for download on Solomon’s website, Paystack Storefront and Selar.