The Central Bank of Nigeria (CBN) plans to lower transaction fees for the eNaira platform by 50%, which they say will increase the volume of transactions on the central bank digital currency (CBDC).
In addition, the central bank believes CBDC adoption will enhance Nigeria’s cross-border trade.
Joshua Ogwu, a researcher at The Continental Approach, takes a cautious approach to the news.
“Whether this action will culminate into the E-Naira gaining heavy traction is more of theory than fact, and we are watching to see where the pendulum swings. The E-Naira is yet to live up to its hype, with a feeble 840,000 wallet downloads (only a quarter of the number being active) since its launch- a clear disparaging and minute figure compared to Nigeria’s over 260 million population.”
The Nigerian economy is one of the most complex and dynamic in West Africa. In addition to its 180 million-strong domestic market and vast manufacturing base, it has the scale to become the engine of growth in trade across the region.
According to the IMF, several studies have shown that informal cross-border trade (ICBT) across custom frontiers is thriving globally, especially in Africa.
The informal sector, including the ICBT, is a significant source of employment, and food security is strongly impacted by it in many African countries, including Nigeria.
Customs border trade is intertwined with the daily economic activities of border dwellers and helps address supply/demand imbalances for commodities.
Frequently, these transactions are economic activities undertaken by the working class and herders to mitigate surpluses and shortages of staple foods, alleviate price fluctuations, and maintain food security.
In addition, since 2005, the Nigerian financial services sector has experienced increased government and regulatory initiatives dedicated to growing financial inclusion.
While the government has emphasized interventionist financing arrangements and building institutions and frameworks that promote economic inclusion, the CBN has been at the forefront of supporting and encouraging low-income and financially excluded products.
In late August, the CBN unveiled a seamless offline solution for using the E-Naira by launching a USSD code. This new move is just one of the many ways the CBN innovates on digital currency.
On this aspect of ICBT, Ogwu remarks, “The slash of service fees will likely have impacts on cross border payments. Migrants seeking to send money home to their loved ones will consider using the e naira platform, particularly to escape the arbitrary rates, delays, and high transaction fees associated with banks and International Money Transfer Operators (IMTOs). This will have spillover benefits for Nigeria’s economy as remittance figures rise. This is a big deal for Nigeria as remittance accounts for a substantial value of foreign exchange earnings. Another benefit of the move is that it can enhance domestic and cross-border trade by reducing the cost of goods when they eventually reach their consumers and eliminating conventional money barriers associated with trading activities. This will be a great boon for businesses already signed up as e naira merchants as they can increase their respective volumes of e-commerce transactions without incurring additional costs.”
Long-term plans for CBN
Many other bodies also have concerns in this area. Earlier this month, the United Nations took a strong stance against stablecoins in emerging markets, stating concerns around development, financial stability, and cybersecurity. They called for regulated financial institutions not to hold cryptocurrencies or offer their customers stablecoins.
Ogwu also has some concerns “notwithstanding these benefits; there are concerns about whether Nigerian banks will fully embrace the digital currency and pitch the CBN’s futuristic ideas to their customers. The E-Naira has no clear incentives for banks, and mobile money transfer offerings by banks and Fintechs already cover the services the digital currency intends to provide. Secondly, the eNaira is still much like fiat Naira, as far as most Nigerians are concerned. For a currency that ranks as the 11th worst performing in the world, It would be incredulous to think Nigerians would fancy keeping the eNaira as a store of value or for investment purposes when alternatives like the Dollars, Stablecoins, bitcoin, and other cryptocurrencies abound.”
“This negative credit rating of the Naira may likely streamline the functions of the e-Naira for payment purposes only, a role fulfilled by the proliferation of mobile money services in the country and the use of private digital currencies. If the value of the Naira peaks anytime soon, E-Naira may gain traction, so we are earnestly watching to see how this new move turns out.”