On October 25, Nigeria became the first country in Africa to introduce a digital currency, with the launch of the eNaira. It has been touted as a “game changer” that will transform commerce in the continent’s largest economy. Users can access the eNaira through a mobile app, which offers a digital wallet that connects to a user’s bank account. Transactions are primarily completed by sharing and scanning QR codes or a short payment code that is unique for each transfer. Users without a bank account can register for an eNaira wallet, but they are restricted to a maximum of 50,000 naira ($120) worth of transactions daily — banked users can go up to 500,000 naira ($1,200).
While the governor of the Central Bank of Nigeria (CBN) has been championing the naira’s new incarnation — which has the same value as the regular currency — its introduction has not been smooth, and local financial industry insiders have questioned the practical need for a digital currency in a currently struggling economy. More significantly, senior officials at CBN and in the Nigerian presidency, who spoke to Rest of World on condition of anonymity, have privately expressed some of the same concerns.
Serious talk of a central bank digital currency (CBDC), which would go on to be called the eNaira, started barely three months after the CBN banned cryptocurrency trading in February. When he announced it on May 26, Godwin Emefiele, governor of the CBN, said the eNaira will improve access to financial services for many of the country’s unbanked population — 55% of adult Nigerians. In the wake of the Covid-19 pandemic, it was also designed to simplify payments of government stimulus packages to struggling citizens and improve the process of receiving international remittances, while reducing the cost of transactions.
But analysts and market watchers who spoke to Rest of World said the key advantage a digital currency might have had for moving funds in and out of Nigeria is undermined with the eNaira by a lack of transparency in the multi-rate foreign exchange system managed by the central bank, even as the national currency steadily loses value against the U.S. dollar. These issues with multiple exchange rates have put several companies in distress and pushed Nigerians to use informal cash-based transactions and increasingly rely on cryptocurrencies, including bitcoin and stablecoins.
“The only reason to use the eNaira over cryptocurrency would be trust in the government, and that trust has been eroded for many,” said Adedeji Owonibi, CEO of Convexity, a blockchain consultancy in a research paper published last month by Chainalysis.
Nigeria is among seven countries, and the first outside the Caribbean, to have launched a central bank–issued digital currency. Over 80% of the world’s central banks are looking into some form of CBDC; 17 are now in the pilot stage with their digital currencies.
But many Nigerian central bank officials are still deeply divided over the eNaira. There are concerns about its implementation so far and even questions about the need for its existence, according to two CBN officials who spoke to Rest of World.
The CBN chose a little-known technical partner from Barbados to develop the eNaira. Emefiele said in mid-September that the company, Bitt Inc., was selected after a “rigorous selection process” in line with Nigeria’s procurement laws. He added that 10 companies were evaluated as part of the process.
Bitt similarly told Rest of World via email that it went through “multiple stages of presentations, solution walk-throughs, the provision of a demo system, a detailed technical evaluation, and thorough vetting of company personnel” before being offered the contract.
One advantage Bitt may have over competitors is that its system is designed to build digital currencies using blockchain technology, an executive at a North American CBDC company told Rest of World. The company, which had also been interested in bidding for the eNaira project, according to the executive, had not been made aware of a formal “request for proposal” process from CBN.
“The selection process was not transparent,” said the rival executive, who declined to be named, to protect his company. “It seemed to me they had already decided on a technology partner before the process ever began.”
The selection of Bitt was further called into question after a September 17 press briefing held by Emefiele, where he said CBN would hold “a substantial stake” in the tech company and mandate its incorporation in Nigeria. The governor did not give any further details as to how this would work.
Bitt has raised $31 million in total funding over the course of its eight-year existence. It completed an $11.5 million series B round on October 1 and another $8 million round three weeks later. CBN was neither listed as the lead investor nor a participating investor in the round. The company did not respond to questions about plans to incorporate in Nigeria, but it said, via email: “The CBN is not an investor and does not have a major stake in Bitt.”
Meanwhile, the eNaira’s launch ran into several hurdles. Its planned October 1 rollout was postponed just 24 hours before it was supposed to go live. At the time, a source at a fintech company, with knowledge of the eNaira’s implementation, said many banks had yet to integrate their systems with the digital currency’s mobile wallet.
Then, just two days after the eNaira launched on October 25, CBN officials were alerted that the currency’s app had been taken down from the Google Play store for an undisclosed policy violation. The app had racked up some 100,000 downloads on Android, with over 2,000 reviews and a 2.0-star rating. It was back up in the store the next day, after frantic messages were exchanged between Nigeria’s regulators and Google Play store managers.
Since then, three weeks after the rollout of the digital currency, the eNaira app is now reported to have been installed over 450,000 times, and users had completed over 12,000 transactions worth 62 million naira ($150,100). But it’s a far cry from what was hoped.
The eNaira’s lackluster start stands in stark contrast to the rising popularity of cryptocurrency in Nigeria over the past two years.
An internal report from one of the country’s big fintech firms, ahead of the eNaira launch, and seen by Rest of World, estimates that eNaira transaction volume will top $20 million by the end of the year and reach $100 million by Q3 2022. At the currency’s official launch, Nigeria’s president, Muhammadu Buhari, said digital money could add $29 billion to the country’s GDP over the next 10 years.
The eNaira’s lackluster start stands in stark contrast to the popularity of cryptocurrency in Nigeria over the past two years. Crypto has become especially popular for moving funds in and out of the country, circumventing a convoluted forex system. Nigeria has been one of the most active markets for crypto trade globally in the last couple of years. But in February, CBN banned cryptocurrency trading in the country and has tried to clamp down on individual bank accounts involved in peer-to-peer transactions.
Elsewhere, industry insiders are concerned that the real-time nature and speedy transfers propositions of the eNaira are moot, since the Nigerian financial system has had instant and digital payments for the last decade. “How is it superior to the existing money and payments system?” the CEO of a leading Nigerian bank asked in a message to Rest of World.
Leaders at local fintech startups also question why the banking regulator hastily launched the app rather than fully leveraging partnerships with banks and fintechs to have a better chance of achieving financial inclusion.
Though transaction fees for payments have fallen, in large part thanks to CBN regulation, a senior CBN official believes that they are still too high. He believes that this discourages many of Nigeria’s unbanked population from adopting digital payment solutions. The eNaira would reduce that friction for this segment, said the official.
Despite this uncertainty, digital currency is set to grow, as the CBN tracks and clamps down on bank customers involved in cryptocurrency transactions. But from all indications, the eNaira is here to stay.
