Naira's Digitization Via The E-Naira: Beyond Financial Inclusion

Tope Adebayo LP


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Nigeria's monetary system has seen considerable reforms in the past years. In carrying out its supervisory functions, the Central Bank of Nigeria ("CBN") has developed various monetary policies...
Nigeria Finance and Banking
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Nigeria's monetary system has seen considerable reforms in the past years. In carrying out its supervisory functions, the Central Bank of Nigeria ("CBN") has developed various monetary policies to ensure the system's effectiveness, including ensuring the use of emerging technologies in advancing its goal of closing the access gap to financial services. The development of safe, robust, and efficient payment systems is critical to the promotion and maintenance of financial stability, and emphasis has been placed on the need to strengthen payment systems by developing internationally acceptable standards and practices for their design and operations.1

Payment systems play a crucial role in any economy and represent the major channel through which financial resources flow from one segment of the economy to the other. Essentially, payment systems play three pivotal roles: the Monetary Policy role, the Financial Stability Role and, the overall Economic Role. Commendably, following the establishment of the Monetary Policy Committee ("MPC")2 by the CBN, Nigeria's payment systems have witnessed remarkable achievements with the introduction of several initiatives under the Payments System Vision 2020.3

Naira's Digitization (the "eNaira")

A very recent and significant accomplishment of the CBN is the development and issuance of the new Central Bank Digital Currency ("CBDC"), the eNaira. Economies exploring the use of CBDCs see it as a great avenue for financial inclusion and stability as well as an efficient mode of domestic payments. This is in addition to the need to ensure payment safety by attempting to mitigate the potential threats posed by cryptocurrencies and their variants through CBDC issuance. The eNaira is the digital form of the Naira issued by the CBN to complement the traditional Naira as a less costly, more efficient, safe and trusted means of payment. The eNaira was developed using the blockchain business model which will necessitate the use of wallet by its users.

This CBDC will enable the CBN drive its monetary policies, such as ensuring more efficient remittances and financial inclusion, better cross-border transactions, and generally improving the payment systems operation in Nigeria. The eNaira would be administered by the CBN through the Digital Currency Management System ("DCMS") that has been designed to operate using the two-tier model 'hybrid system', where the CBN as developer and regulator relates directly with the users while the commercial banks including other fintech organizations act as intermediaries using the Financial Institution Suite.4 Consequently, financial institutions have the responsibility to onboard their customers and integrate the eNaira wallet feature into their digital banking channels.5

Acceptance of the eNaira

There is no doubt that if properly harnessed, a more simplified and less expensive payment system would thrive in Nigeria. The country is home to one of the world's youngest populations, with increasing smartphone penetration and has made notable advancement in regulations to increase financial inclusion and cashless payments.6 According to the Nigeria Inter-Bank Settlement System ("NIBSS"), in recent years mobile phones and tablets have been the major channels used for NIBSS Instant Payment ("NIP") transactions. Online transactions hit 569 million by the end of Q3 2020, up by 41% from 403 million in Q2 2020. The value of these transactions increased by 50% from 29.6 trillion ($77 billion) to ₦44.3 trillion ($116 billion).

Certainly, there are underlining challenges to operating a CBDC, one of which is the possibility of deposit flight from traditional commercial banks once citizens fully accept the CBDC and begin to perceive it as a safer mode of store of value. Measures to combat this concern include amongst other, monetary policies, limitation of the amount of CBDC held by each consumer as already implemented by the CBN as well as its zero-interest rate feature, thus, disincentivizing the need to have a high stock of this asset. Regulators should begin to measure the level of acceptance of this digital currency within the next few months.

Beyond Financial Inclusion

A CBDC Regime for Efficiency in the Flow of Foreign Remittances

One of the major benefits canvassed for the development of the CBDC regime is the ability to solve the present inefficiencies7 in the flow of foreign remittances ("FR")8. FR flow continue to be one of the greatest sources of revenue for developing economies such as Nigeria. In fact, according to PWC, for four consecutive years in the recent past, official remittances exceeded Nigeria's oil revenues. It represented 83% of the Federal Government budget in 2018 and eleven times the FDI flows in the same period, and was also seven times larger than the net official development assistance (foreign aid) received in 20179. World Bank data also indicates that remittance flow to Nigeria accounts for over 40% of remittance flows to the Sub-Saharan region for the year 2020, whilst remaining the most expensive region to send money to.10 The Federal Government is aware of the huge potential afforded by FR by the diaspora community and perhaps, this is one of the factors that informed the early launch of the pilot CBDC project.

The question therefore is, how can the adoption of CBDC by Central Banks aid in solving the inefficiencies in the flow of FR? A major priority of the G2011 has been the need to enhance cross-border payments by addressing the key challenges.12 They recognize the fact that faster, cheaper, more transparent and more inclusive cross-border payments services would deliver widespread benefits for citizens and economies worldwide, and support economic growth, international trade, global development and financial inclusion. Various research efforts aimed at addressing these challenges13 indicate that by leveraging on technological advancement, a model such as the Distributed Ledger Technology ("DLT") solution for cross border funds transfer, has the potential to complete a multi-currency cross-border payment process utilizing wholesale multi-CBDCs ("mCBDCs") within seconds.14 Some of the potential benefits of the DLT solution includes improved payment settlement efficiency through a design model that allows cross-border transactions to occur real-time without intermediaries or settlement layers, enhanced liquidity efficiency through multi-currency liquidity saving mechanisms; better compliance with regulations & improvement in reporting ability, opportunity for wider scope with extensible infrastructure for larger participants.15

To achieve these gains, it is imperative to factor an international dimension into CBDC design. This would require multi-jurisdictional collaboration and cooperation amongst central banks, as such coordination of national CBDC designs offers the opportunity to start with a clean slate and address the fictions inherent in cross-border payment systems and arrangement from the outset, by taking interoperability across jurisdictions into account when countries are designing their domestic CBDCs. Most central banks' CBDC model is first and foremost centered around operability for the local adoption of the retail currency. However, such an approach must be expanded to take cognizance of the mCDBC model and the need for a certain level of compatibility in CBDC systems. It is hoped that the design model behind the eNaira is such as can permit coordination amongst peers once the mCBDC model becomes operational.

Boosting Intra-African Trade by Digitizing Trade Finance: A case for mCBDCs

Beyond the tremendous potential for efficiency in the flow of FR, mCBDCs may provide a great avenue for boosting intra-African trade through a unified payment system for cross-border trade in goods and services within the African Continental Free Trade Area ("AfCFTA"). The AfCFTA is the largest free trade area in the world, and once it becomes fully operational, it promises to unlock immense value and economic development for the continent. Unfortunately, many member states are still struggling with basic trade digitization, such as adoption of and access to e-commerce platforms and digital payments solutions by the majority of the populace, due to infrastructural deficit. Because trade facilitation is critical to the success of this treaty, deliberate efforts must be made to engage member States and, where necessary, assist them in transitioning to a more digitized local economy with financial inclusion as a minimum starting point. This ensures that micro businesses are positioned to take advantage of the promised benefits of the AfCFTA.

However, this is just the starting point. Technological advancements, such as blockchain technology. are yielding significant benefits that the continent must fully embrace in order to make a quantum leap in economic development, particularly in light of the setback experienced due to the COVID-19 pandemic. Aside from digitizing customs activities, simplifying trade documentation by reducing paperwork and employing smart contracts, among other possibilities, blockchain technology can be utilized to simplify trade finance across the continent through the adoption of mCBDCs as a payment solution. As already stated, the DLT solution for cross-border and FX funds transfer has huge potentials for simplifying cross-border payments with great savings on time and money. Research already indicates that it can deliver advantages such as payment verification decentralization, resilient payment landscape, payment innovation through utilization of smart contracts, cash tokenization, data integrity and interoperability.16

These are emerging solutions to pain points currently experienced in cross-border trade finance transactions and African entrepreneurs and SMEs operating in the liberalized market for trade in goods and services across the continent will benefit greatly from such a system, and ultimately deliver greater value to their member States and the continent as a whole. The DLT solution is not without its problems as with other technological innovations, and various jurisdictions are still in the process of ironing out the kinks. However, the conversation keeps progressing and Africa through AfCFTA must not be left out of the discuss, as the DLT solution promises to be one of the major avenues for eliminating non-tariff barriers to trade within the continent. Aside from Nigeria, many African countries are actively exploring and researching the issuance of CBDCs in their jurisdictions. Ghana, South Africa, Morocco, Tanzania, Madagascar, Egypt and Kenya are at different stages of development with Tunisia and Senegal already in their pilot phases. Some of these countries, such as Ghana and South Africa have entered into collaborations for exploring the benefits of blockchain. South Africa for instance, in partnership with other members of the BRICS17 and their participating banks have an ongoing collaboration for research into blockchain technology for trade finance.

We believe that CBDC adoption within member States of the AfCFTA is imminent, albeit progressive. Thus, the importance of early cooperation amongst member States at the design stage, or at the latest, the pilot stage, cannot be overemphasized. This will ensure that there is policy coherence, convertibility and interoperability of mCBDCs at the development stage whilst still ensuring central bank independence. If this window is missed, coordination at a later stage becomes cumbersome, time consuming, expensive and may set the continent back decades in its economic development agenda. The unplanned and undesirable alternative would most likely be a proliferation of largely unregulated cryptocurrencies and their variants as a means of payment across large e-commerce platforms and the likely adoption of global alternatives to money such as the stablecoins which is already a subject of discuss. This will undoubtedly pose a major risk to the status of public money as the generally acceptable unit of account.

Perhaps, the first step in this process is for the Regional Economic Communities ("RECs") Free Trade Areas to kickstart this discussion. For Nigeria and its regional counterparts, that would be the Economic Community of West African States ("ECOWAS", the "Community"). Save for Nigeria and Ghana, we are not certain of where the other thirteen countries are in their CBDC plans. This is where the Community should step in and have the necessary discussions. Nigeria especially, and Ghana have major roles to play in this discuss. According to the ECOWAS Vision 202018, the region by 2020 "will be living in a developed and integrated West Africa where all the 15 national economies have been fused into one integrated, competitive and resilient market, and everyone can operate freely anywhere within the region." [Emphasis mine. ]

The Community is far from achieving this goal and we believe the mCBDC adoption would be a major driver for its attainment. Specialized institutions of the ECOWAS such as the West African Monetary Agency ("WAMA") whose major goal remains the achievement of a single currency for the ECOWAS region, as well as the Directorate of Multilateral Surveillance which is responsible for promoting economic policy harmonization and monetary cooperation for macroeconomic convergence, as well as the attainment of a single regional currency and the establishment of a monetary union, should be at the forefront of championing the development of the mCBDCs as a payment solution for cross-border FX transactions. Undoubtedly, for a region with mostly poor technological infrastructure for trade digitization, this will be an uphill task, but we must not shy away from the conversation.


Nigeria has taken another bold step towards trade finance digitization through the introduction of the eNaira. However, the journey has just begun. Sovereign CBDCs have great potential for unlocking the exponential economic growth of Africa both at the REC and AfCFTA levels. Some countries and regional economic blocs are making great strides in developing workable solutions to unlock the value in mCBDCs adoption for cross-border trade finance through partnerships with organizations such as the BIS. If Africa is to tap into the huge potential for trade liberalization offered by the AfCFTA, it needs to take a cue from these jurisdictions and explore partnerships for research and development into mCBDCs as a veritable means of cross-border, multicurrency payment solution. We believe that Nigeria has a major role to play in driving this conversation and we hope to start seeing discuss in this direction.


1 Bank for International Settlements "("BIS"); Core Principles for Systematically Important Payment Systems;; Accessed October 4, 2021.

2 The MPC is responsible for facilitating the attainment of price stability and supporting the economic policy of the Federal Government. Central Bank of Nigeria (CBN) Monetary Policy, Financial Inclusion Policy . Accessed October 10, 2021

3; Accessed October 18, 2021.

4 See Regulation 3.2 of the Guidelines on eNaira issued by the CBN.

5 Ibid. Regulation 4.1.2

6 Mckinsey; Harnessing Nigeria's Fintech Potential; September 23, 2020;; Accessed October 4, 2021.

7 Cross-border payments are premised on a correspondent banking model involving multiple intermediary steps across multiple time zones and consequently, different operating hours, thus leading to high transaction costs, low speed and operational complexities amongst others.

8 FR are done through cross-border payments which basically involves payments between payer and a recipient who reside in different jurisdictions and most times involves currency conversion.

9 Strength from abroad: The economic power of Nigeria's diaspora: Accessed October 18, 2021

10 sending $200 cost an average of 8.2 percent in the fourth quarter of 2020. Accessed October 18, 2021

11 The Group of 20 ("G20") is the international forum that brings together the world's major economies. Its members account for more than 80% of world GDP, 75% of global trade and 60% of the population of the planet. The members are:Argentina,Australia,Brazil,Canada,China,France,Germany,India,Indonesia,Italy,Japan,Republic of Korea,Mexico,Russia,Saudi Arabia,South Africa,Turkey,theUnited Kingdom,theUnited States, and theEuropean Union.

12 The major highlights are captured in this section. For a detailed report, see the BIS Report of the G20: Central bank digital currencies for cross border payments: Accessed October 15, 2021

13 For a full report, see Project Inthanon-LionRock (Phase I): Leveraging Distributed Ledger Technology to Increase Efficiency in Cross-Border Payments:; Project Inthanon-LionRock (Phase II & III): Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments. Accessed October 15, 2021. There is also Project Dunbar which is a (Platform for settling cross-border payments using multiple wholesale CBDCs). It builds on the work by the Monetary Authority of Singapore and the financial industry on Project Ubin and aims to develop working prototypes of shared settlement platforms for transactions with multiple CBDCs, and connectivity mechanisms to link up multiple shared platforms. Its report is expected to be released in the early part of 2022.

14 The technology allows real-time atomic cross-border transactions at a significantly reduced cost and in a manner that allows the participating central banks to control the flow of their CBDCs and to monitor transactions and balances of their issued CBDCs; with programmable levels of transaction privacy and aspects of automated compliance, thereby still ensuring monetary sovereignty. There are however, legal, operational and technical considerations which centrals banks and the participating commercial banks will still need to explore in order to effectively deliver this potential. These include changes in the regulatory environment of certain jurisdictions and the need to harmonise disparate cross—jurisdiction regulatory frameworks; data privacy concerns; Anti-Money Laundering (AML) Accordance; settlement finality; governance structures, roles and responsibilities amongst multiple jurisdictions; technical considerations such as performance and scalability, security and production resilience.

15 See Project Inthanon-LionRock (Phase I): Leveraging Distributed Ledger Technology to Increase Efficiency in Cross-Border Payments:

16 Project Inthanon Lion-Rock - Central Bank Digital Currency: The Future of Payments for Corporates. Accessed October 15, 2021

17 An association of five major emerging economies made up of Brazil, Russia, India, China, and South Africa

18 Accessed October 15, 2021

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