eNAIRA: BENEFITS AND CHALLENGES

1. eNAIRA: BENEFITS AND CHALLENGES
Being a Paper Presented at the Monthly Technical Session of ICAN
Ilupeju/Gbagada & District Society on December 19, 2021.
Prof. Godwin Emmanuel Oyedokun
godwinoye@yahoo.com
+2348033737184, & +2348055863944
Professor of Management & Accounting
Lead City University, Ibadan, Nigeria
Principal Partner; Oyedokun Godwin Emmanuel & Co. (Chartered Accountant)

2. eNAIRA:
BENEFITS AND
CHALLENGES

3. Contents
Background
CBDC Vs
Cryptocurrency
Why has Nigeria
Launched a Digital
currency?
The Four of Four of
eNaira
Merchant/Financial
Institutions
(FIs)/MDAs
Transactions
How will the eNaira
Wallet operate?
Monetary Benefits
of eNaira
Fiscal Benefits of
eNaira
Trade Benefits of
eNaira
Challenges and
Risks of eNaira
Risk Mitigation of
eNaira
General benefits of
eNaira
Conclusion and
Recommendations

4. Background
A Central Bank Digital Currency (CBDC) is a country’s official currency in
digital form
It is therefore direct liability of the issuing Central Bank
CBDC can be broadly classified into retail and wholesale
A retail CBDC is digital cash used by persons and companies
A wholesale CBDC is used to enable transactions between financial institutions
and central banks as well as entities holding accounts with central banks

5. Background
The eNaira is the digital form of the 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 forms part of the currency-in-
circulation
The wholesale eNaria is used to enable transactions between financial institutions
and the central bank as well as entities holding accounts with central banks
The eNaira has parity of value with physical cash at a 1:1 conversion rate (1 eN = N1)
Just like physical cash, eNaira holding in wallets does not bear interest

6. CBDC Vs Cryptocurrency
➢ Issued by a monetary authority-
Central Bank
➢ CBDC is backed by law i. e.
legal tender
➢ CBDC is a direct liability of the
Central Bank
➢ Relatively stable
➢ Private money with no central
authority
➢ Not a legal tender
➢ It is not a liability of the Central
Bank
➢ Speculative asset/Highly volatile
Cryptocurrency
CBDC

7. Why has Nigeria Launched a Digital currency?
➢ Promote and facilitate financial inclusion
➢ Enable direct welfare disbursements to citizens
➢ Facilitate diaspora remittances
➢ Declining use of cash and rise in digital payments
➢ Covid-19 pandemic which has accelerated the adoption of digital payment technologies
➢ Threat from private digital currencies
➢ Financial stability concerns
➢ Reduce the cost of processing cash
➢ Improve the availability and usability of Central Bank money
➢ Increase revenue and tax collection
➢ Support a resilient payment system
➢ Improve the efficiency of cross-border payments

8. The Four of Four of eNaira
Four major parties in the operating model of eNaira
➢The CBN
➢The licensed FIs (responsible for issuing eNaira to Customers, monitoring digital
transactions under their institution
➢Businesses and Merchants (responsible for complying with the CBN regulation on
KYC and AML/CFT)
➢Customers (responsible for maintaining an eNaira Wallet)
eNaira will operate at four levels
➢ Consumer transactions
➢Merchant/wholesale transactions
➢Financial Institutions transactions
➢Ministries, departments and agencies (MDAs) Transactions

9. Merchant/Financial Institutions (FIs)/MDAs Transactions
Merchant
Transaction
➢ Merchant/Business to
bank account
➢ Merchant/Business to
Person (M/B2P)
➢ Cash to eNaira
➢ FIs to CBN / CBN to FI
➢ FI to Government /
Government to FI
➢ FI to Business /
Business to FI
➢ FI to Customer
➢ MDAs to Person /
Person to MDAs;
➢ MDAs to MDAs
➢ MDAs to FIs / FIs to
MDAs
➢ MDAs to CBN / CBN
to MDAs
➢ MDAs to Businesses /
Business to MDAs
Financial Institutions
(FIs) Transaction
MDAs
Transaction

10. How will the eNaira Wallet operate?
Types of Wallet Cumulative
balance Limit
Daily Transfer
Limit
Know Your Customers Requirement (KYC)
Tier 0 N120,000 N20,000 No existing bank account, phone number,
name & birth date
Tier 1 N300,000 N50,000 No existing bank account, phone number,
name, birth date & validated by NIN
Tier 2 N500,000 N200,000 Existing Bank account and Bank
Verification Number (BVN)
Tier 3 N5,000,000 N1,000,000 Existing Bank account and BVN plus public
utility receipt
Merchant No Limit No Limit Full KYC requirement and Anti-money
laundering and counterfeit terrorism
regulation of the CBN

11. Monetary Benefits of eNaira
eNaira will substitute cash without altering the money in circulation
eNaira would lower the cost of issuing naira notes
eNaira will lower the cost of destroying unfit paper money as CBN spent
N814.60 billion on currency disposal in 2019
eNaira will not affect Reserve Money (DMB’s reserves plus CIC) as there is
no creation of new money
eNaira will most likely increase velocity of narrow money
eNaira will enhances monetary effectiveness via information efficiency

12. Fiscal Benefits of eNaira
Improves Revenue
and Tax Collection
Promotes and
supports the
implementation of
Government
objectives
Enhances the
distribution of
palliatives/targeted
Social Interventions
eNaira will stimulate
economic growth
from the expansion
of the formal
economy and
greater inclusion of
the informal sector

13. Trade Benefits of eNaira
eNaira will promotes e-Commerce
eNaira will be exchangeable for other Central Bank Digital Currencies
(CBDC) according to CBN
eNaira will facilitate remittances against the backdrop of the
commencement of the African Continental Free Trade Area
eNaira is expected to promote formal cross-border payments for
efficiency, convenience and affordability through instant settlements and
lack of intermediaries

14. Challenges and Risks of eNaira
Associated Cost and
Risk of deploying/on-
boarding a new
payment platform
Disruptive
Competition
Operational and
Cyber Security Risk
Low Internet/Smartphone
penetration; estimated at less
than 20% of the population in
2019 compared to almost 60%
in China
Risk of Disintermediation;
the possibility that eNaira
might erode the role of
Deposit Money Banks as
financial intermediaries
As customers convert their bank
deposits into eNaira, banks will
have a smaller base on which to
create loans

15. Risk Mitigation of eNaira
To overcome the internet challenge, the CBN plans to make transacting with the eNaira
accessible via USSD codes
To minimize operational risk, the CBN has appointed a technical partner
To address the concern of possible disintermediation, the CBN has imposed Limits on eNaira
holdings
Unlike bank deposits, the eNaira is not interest-bearing
eNaira is secured with cryptographic techniques against counterfeiting, cloning and other forms
of attack
There are technical design structures in place to protect users’ identity and privacy
All users have restricted visibility on transaction activities

16. General Benefits of eNaira
It provides secure and cheaper diaspora remittance options and make such transactions faster
Due to its traceability, the eNaira makes it more difficult for individuals or organizations to indulge in fraud
eNaira provides financial inclusion by making financial services available to rural communities
eNaira will promote local and international trade
It will aid revenue collection by reducing the cost of handling cash
It presents an exceptional digital experience
eNaira is will to foster economic growth by offering more accessible access to capital and financial
services, increasing economic activities at low/no interest transaction rates
It provides a secure banking which the e-Naira promises
eNaira makes it possible to send funds, save money, and save time while at it

17. Conclusion and Recommendations
❖ eNaira fulfill the three roles of money in every society as instituted by Adam Smith
❖ as a unit of account (the yardstick of economic activity);
❖ a means of exchange to make payments; and
❖ as a store of value to transfer purchasing power over time.
❖ With eNaira, the CBN’s main goal appears to be the provision of a universal means of exchange
for the digital economy
❖ eNaira is to cater for businesses and households seeking faster, safer, easier and cheaper means
of payments
❖ CBN is certainly not out to compete with DMBs or disintermediate the financial sector by offering
a universal store of value
❖ Indeed, eNaira is more beneficial to individuals and businesses compared to its little challenges
❖ It is an idea whose time has come
Nigerians home and abroad are therefore, implored to jump-in and explore this new innovation
billed to improving our mode of business activities