One example of this is the initiative in the southern African country of Eswatini.

In a pioneering move, the Central Bank of Eswatini (CBE) has opened its CBDC-platform, which is based on Giesecke+Devrient’s (G+D) Filia solution, to fintechs so they can test existing or new services.

Instacash, a service provider for mobile electronic money transfer services, used this opportunity to carry out payment transactions with the digital Lilangeni via a feature phone for the first time.

The African continent is a pioneer in the development and practical testing of Central Bank Digital Currencies.

This includes countries such as Ghana and the Kingdom of Eswatini. Visitors to the Eswatini International Trade Fair, for example, were able to test payments with the digital Lilangeni, before the project was rolled-out to a larger part of the population as part of a pilot.

During the pilot, the Central Bank of Eswatini invited fintechs to evaluate new digital payment services and gave them access to G+D’s Filia ecosystem.

On its own initiative, the local financial services provider Instacash used this opportunity to develop a proof-of-concept (PoC) for an application enabling integration of the digital Lilangeni into existing Instacash services. The standard tools and documentation of the Filia ecosystem were used – no special developments or additional support from G+D were required.

This underlines the role of Filia as a comprehensive, open innovation platform for the development of future-oriented CBDC solutions.

With the Instacash application, for example, it is now possible to use the digital Lilangeni to open a wallet, check the balance, access financial services or make transfers.

This requires neither an expensive smartphone nor an online connection. Instead, access is possible via the familiar mobile phone codes (GSM or USSD codes), which are simply entered using a keypad.

This cost-effective technology, which has been established for decades, is very popular in Africa, as around half of the population does not have a smartphone.

The solution developed as part of the PoC is therefore also an important contribution to greater financial inclusion for the population.

“Instacash’s initiative underlines the enormous potential that the introduction of Central Bank Digital Currencies opens up for payment players,” says Dr. Raoul Herborg, Managing Director of the CBDC unit at G+D. “It is an excellent example of a customer-centric collaboration between Central Banks and private digital currency providers that also strengthens financial inclusion by integrating CBDCs into existing financial services.”

In a strategic move to promote widespread adoption of the eNaira and enhance the functionality of the CBDC mobile app, the CBN has integrated Near Field Communication (NFC) technology for seamless and contactless payments, according to reports.

Previously, the eNaira mobile app relied on QR codes for transactions; however, with the integration of NFC technology, users can now experience convenient and secure interactions between their mobile devices and payment terminals.

NFC is a cutting-edge short-range wireless connectivity technology that utilizes magnetic field induction to enable swift and secure communication between devices.

At a recent eNaira sensitization workshop held at the University of Abuja, Joseph Angaye, the deputy director of the CBN’s risk management department, emphasized the importance of embracing technological advancements to foster economic growth.

He stated that this upgrade is expected to significantly boost the adoption rates for the CBDC, thus promoting a more digitally inclusive economy.

“The eNaira app has evolved to offer numerous benefits to users. In a rapidly digitizing world, the CBN is committed to staying at the forefront of technological innovation.

We were among the pioneers in launching the eNaira app, and now, with the addition of NFC technology, we have further enhanced its practicality and functionality,” said Angaye.

The programmable features of the eNaira app provide immense versatility, enabling it to be tailored for specific locations or purposes.

This flexibility proves particularly valuable for executing targeted intervention programs, ensuring funds are directed towards intended purposes and minimizing the risk of misuse or diversion.

Angaye further elaborated, “The beauty of the eNaira lies in its efficiency and safety. The incorporation of NFC technology addresses concerns related to transaction speed and settlement risks, enhancing user confidence in our CBDC.”

Since its launch in 2021, Nigeria has been among the pioneers in the global CBDC landscape, taking significant strides to drive adoption.

Despite initial challenges in meeting projected uptake, the CBN has proactively introduced use cases in the transport sector and integrated USSD functionality into the eNaira offering. These efforts reflect the CBN’s commitment to fostering a thriving digital economy.

It is essential to recall that in 2021, Nigeria’s central bank imposed restrictions on banks and financial institutions from facilitating digital currency transactions.

Nonetheless, the vibrant digital currency ecosystem in the country, coupled with the introduction of the eNaira, has resulted in Nigeria ranking among the largest volume of digital token transactions on peer-to-peer trading platforms globally.

Despite claims by the CBN that over 20 million Nigerians have embraced the e-Naira initiative, public awareness, and usage appear to contradict these assertions.

CBN Takes e-Naira Campaign to University of Jos

To promote the use of e-Naira wallets for seamless and cost-effective transactions, the CBN brought its campaign to the University of Jos.

The CBN Jos Branch Controller, Esther Tinat, emphasized the simplicity of the e-Naira and urged the university’s management, staff, and students to embrace digital currency for various transactions, including payment of school fees.

Paying Fees and Embracing the e-Naira

CBN’s e-Naira consultant, Izuchukwu Nwankpa, stated that over 20 million individuals have already adopted the e-Naira initiative. According to Joseph Agai of Zenith Bank, the e-Naira aims to enhance the payment system, particularly for small transactions.

“The e-Naira is designed to facilitate small transactions, you can attest to the challenges we had when everybody tried to do small transactions using the electronic platforms which are designed for high-level transactions.

The e-Naira is very seamless to use, students are very important stakeholders in this project, they are more receptive to technology and they embrace the opportunities it provides for them to do a lot of things.

The e-Naira is designed to be user-friendly, and its implementation offers numerous opportunities, particularly for students who are more receptive to technology.

CBN Faces Scrutiny and Calls for Improvement

While the CBN is eager to implement the e-Naira, some university officials, including the Vice-Chancellor, expressed concerns about unresolved issues in the banking sector and called for improved technology to ensure a seamless payment process.

IMF Report Highlights Challenges

In a recent report titled “Nigeria’s eNaira, One Year After,” the IMF attributes the slow adoption of the e-Naira to the phased approach chosen by the CBN and its inability to enforce usage.

The report highlights that public adoption has been disappointingly low, citing limited acceptance and availability of alternative payment methods as contributing factors.

Downloads

According to the IMF, approximately 98.5 percent of downloaded eNaira wallets have remained unused since their introduction.

The IMF’s report highlights the sluggish adoption of the Central Bank Digital Currency project, with limited usage by both households and merchants.

The report states, “After an initial surge in retail wallet downloads, the numbers gradually declined. It took 25 days to reach 500,000 downloads, but an additional 63 days to reach 600,000, and another 143 days to reach 700,000.”

“As of end-November 2021, there were approximately 860,000 retail eNaira wallets, accounting for only 0.8 percent of Nigeria’s active bank accounts.”

“In comparison, merchant wallet downloads reached about 100,000 by the end of June, which represents only a fraction of the number of merchants with Point-of-Sales (POS) terminals.”

The report further reveals the underutilization of downloaded wallets and emphasizes the challenges faced in driving widespread adoption.

Future Outlook

Although the current adoption rates suggest a slow start for the e-Naira, it is still too early to determine the fate of the overall project.

The IMF report emphasizes that the phased approach and limited benefits for wallet holders have hindered widespread acceptance.

However, the CBN remains committed to the e-Naira initiative, aiming to address these challenges and improve its functionality and appeal to users.

Digital currencies have been around for over 10 years but lately, how to regulate these crypto assets have risen to be the top policy agenda.

Some Nigerians are still trying to rebound from the financial shock that occurred on February 5, 2021, as players who considered cryptocurrency to be one of the most dependable legitimate means of making a living were taken aback.

In February, the apex bank instructed that all customer accounts used in cryptocurrency trading and other related transactions be closed.

Prior to the Nigerian government’s decision to prohibit banks from conducting crypto-related transactions, the Independent Corrupt Practices and Other Related Commission, ICPC, informed lawmakers that the #EndSARS received financial assistance via cryptocurrency.

EndSARS was a decentralized social movement and a series of mass protests in Nigeria against police brutality and was largely funded through Bitcoin – the most popular crypto asset in the world.

The movement attracted N147,855,788.28 M (including donations in dollars, Euros, Bitcoin, and other currencies), while an estimated N700bn was lost in economic value by Nigeria, according to the Lagos Chamber of Commerce and Industry. 

Understandably, among all the reasons listed by the Nigerian government to restrict banks from facilitating cryptocurrency transactions were majorly money laundering and terrorism.  

CBN & SEC Collaboration

The CBN is yet to establish a road map for blockchain and cryptocurrency regulation but has formed a committee to that effect while collaborating with the Securities and Exchange Commission (SEC).

The Securities and Exchange Commission (SEC) is the main regulatory institution of the Nigerian capital market.

According to the regulator, it was collaborating with the CBN to analyze and better understand the identified cryptocurrency risks in hopes of guaranteeing those appropriate regulations are in place if cryptocurrency transactions are authorized in the future.

“We are in discussion with CBN for both understanding and better regulating of this market. We will be able to come back to you later to inform you of the outcome of these engagements, said Director-General, SEC, Lamido Yuguda, said at the 2021 first post-Capital Market Committee (CMC) virtual news conference. 

The SEC had issued regulatory guidelines for digital currencies and crypto-based companies or startups, indicating that they will supervise crypto-token or crypto-coin investments where the nature of the investments qualifies as securities transactions.

“But because of the lack of access to commercial bank accounts, we had to suspend our guidelines of September 2020, the implementation of that circular is suspended until these operators can have access to Nigerian bank accounts.

“Remember that nobody operates in the Nigerian capital market if that person does not have access to a Nigerian bank account,” he said.

According to the Commission, it will regulate cryptocurrency innovation in three ways: safety, market deepening, and providing solutions to issues that will lead to its regulations, strategy, and interactions with innovators seeking legitimacy and significance in this growing industry.

Nigeria’s Payments System 2025

The “Nigeria’s Payments System 2025,” report obtained by TechEconomy noted it will issue a regulatory policy framework for the execution of cryptocurrencies in Nigeria.

The report clearly stated that CBN would consider the development of a regulatory framework for the potential six implementations of ‘Stable Coin. It would also continue its watchful brief on Initial Coin Offerings (ICOs) as well as work with the Securities Exchange Commission (SEC) to jointly develop a regulatory framework in the event of the adoption of an ICO-based investment solution.

Regulating Cryptocurrency 

According to the International Monetary Fund, applying existing regulatory frameworks to crypto assets, or developing new ones, is challenging for several reasons. 

“For a start, the crypto world is evolving rapidly. Regulators are struggling to acquire the talent and learn the skills to keep pace given stretched resources and many other priorities. 

“Monitoring crypto markets is difficult because data are patchy, and regulators find it tricky to keep tabs on thousands of actors who may not be subject to typical disclosure or reporting requirements.”

On December 18, 2022, the Chairman of the House of Representatives Committee on Capital Markets and Institutions, Babangida Ibrahim, disclosed that the chamber will soon pass a law that will allow digital currencies in Nigeria.

“It is not about the lifting of the ban, we are looking at the legality: what is legal and what is within the framework of our operations in Nigeria,” he said. 

“When it comes to digital currencies, they have different names and it depends on the jurisdiction. These currencies, don’t have boundaries. You can stay here in Nigeria and invest in the United States, Canada, or anywhere.

“They are digital. That is why – if you remember – when cryptocurrency was initially banned in Nigeria, the CBN discovered that most of these investors don’t even use local accounts. So, they are not within the jurisdiction of the CBN. Because they are not using local accounts, there is no way the CBN can check them.

“All these are some of the issues that we have considered we have to regulate them. It is not that they are illegal but we don’t have regulations for them. So, these are some of the reasons why we need to review the Act and put some regulations for most of the activities – derivatives, commodity exchanges, digital currencies, and so many other things.

The Governor credited the boost in the value of CBDC transactions to the use of the e-naira by the Nigerian government when transferring social welfare funds to marginalized groups.

The value of Nigeria’s central bank digital currency (CBDC) transactions increased by 63% to $47.7 million (22 billion), with approximately 13 million e-naira wallets downloaded since October 2022, said Emefiele.

However, the country’s currency in circulation fell from more than $6.9 billion (3.2 trillion) in September 2022 to around $2.2 billion in September 2023. (N1 trillion).

The Central Bank of Nigeria’s (CBN) botched demonetization policy has been blamed for the drop in the value of circulating naira banknotes.

Following the announcement of its plan to circulate newly designed banknotes, Nigerian residents were given a few months to return old 200, 500, and 1,000-naira banknotes.

The perceived short repatriation period, as well as the CBN’s failure to provide sufficient banknotes of the newly designed naira, sparked violent protests and requests for a deadline extension.

According to TechEconomy, after the Nigerian Supreme Court ruled against the demonetization process, the Central Bank of Nigeria (CBN) relented and now says previously demonetized banknotes will remain legal tender until the end of the year.

Despite the CBN’s change of heart, both new and old naira banknotes are said to be in short supply, which some Nigerian commentators believe may explain the sudden increase in the value of e-naira transactions.

On Monday, October 25, 2021, in the State House in Aso Villa, President Muhammadu Buhari formally introduced the digital currency.

Osita Nwanisobi, the director of the corporate communications department, said in a statement that the introduction of the eNaira has established Nigeria as one of the forerunners in the deployment of a CBDC into live production.

This, the statement said, had continued to attract the interest of global stakeholders such as the International Monetary Fund (IMF), World Bank, other Central Banks, and the CBDC community.

As part of activities lined up to mark the first anniversary of the eNaira, the statement said the CBN will hold a one-day workshop themed “Leveraging Innovation for Inclusive Growth and Development: The eNaira Advantage” scheduled to take place on Tuesday, October 25, 2022, at the Eko Hotel and Suites, Victoria Island, Lagos.

The objectives of the workshop include the review of the eNaira implementation journey, one year after; to drive further adoption of the eNaira through public engagement and facilitate global policy dialogue on CBDC to promote peer learning and benchmarking.

According to the statement, the event will be hosted by the Governor, Godwin Emefiele, while the Ministers of Communication and Digital Economy and Humanitarian Affairs will be speakers at the event. Other key participants at the event include the Chief Executives of the Securities and Exchange Commission (SEC), the Nigeria Inter-Bank Settlement System Plc (NIBSS), the Nigerian Deposit Insurance Corporation (NDIC), and the National Information Technology Development Agency (NITDA), members of the Bankers’ Committee, the academia, financial services, and telecommunications regulators, merchants, agents, cooperative groups and technical experts, the entertainment industry; amongst others.

The event will also feature a policy round-table discussion on “Effective Collaboration for National Development (Infrastructure, Interoperability, regulation)” and a panel discussion on “eNaira Adoption for economic growth”.

 CBDCs are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country’s fiat currency.

In Nigeria, the Central Bank has been at the forefront of ensuring that Nigerians begin to embrace the eNaira, which has not gained the traction the authorities expect. But it currently has 200,000 subscribers, the apex bank said.

CBN cites financial inclusion as one of its main reasons for rolling out eNaira. But the eNaira only works with digital wallets available on the Google Play Store and Apple Store. Not everybody in Nigeria has a smartphone. Imagine if the eNaira was built without using a smartphone.

Nonetheless, the financial regulator has not relented in making sure that the eNaira becomes more generally acceptable.

Recently, it organized a hackathon in collaboration with the Africa Fintech Foundry (AFF). It has also introduced an Unstructured Supplementary (USSD code).

Other Countries? 

The International Monetary Fund (IMF) claims in a blog post that although governments issue CBDCs for a variety of reasons, several benefits could be particularly significant for the region.

“Promoting financial inclusion is the first step. CBDCs, especially if made for offline use, could provide financial services to people who previously lacked bank accounts. 

Digital transactions can be carried out for little or no money in remote locations without internet connectivity. “

Ghana 

Findings by TechEconomy reveal that countries like Ghana, South Africa, Tanzania, and Kenya are yet to officially launch their CBDCs. Some of these countries.

Some of these countries, like Ghana and Tanzania, are the latest African countries making preparations to launch or test their viability. For example, Ghana’s CBDC, eCedi, is heating up the race to roll out e-cash on the continent.

The Bank of Ghana, by contrast, is testing a general-purpose or retail CBDC, the e-Cedi, which can be used by anyone with either a digital wallet app or a contactless smart card that can be used offline.

South Africa

As part of the second stage of Project Khokha, the South African Reserve Bank is experimenting with a wholesale CBDC that can only be used by financial institutions for interbank payments. 

Additionally, the nation is taking part in a cross-border experiment with the central banks of Singapore, Malaysia, and Australia.

Uganda

Currently, the Bank of Uganda is carrying out preliminary studies on whether or not a central bank digital currency should be considered, especially exploring what policy objectives

The Ugandan government has not banned cryptocurrencies but has concerns about risks from the technology including consumer protection and financial inclusion. 

Conclusion ​​

Nigeria was the second country after the Bahamas to roll out a CBDC.

From what we have gathered, several sub-Saharan African central banks are exploring or in the pilot phase of a digital currency, following Nigeria’s October introduction of the eNaira, last year. 

In the next few months, we expect countries like Ghana and South Africa to fully launch their digital currencies.