HOW NIGERIA’S ENAIRA IS SHAPING CENTRAL BANK DIGITAL CURRENCIES IN AFRICA

HOW NIGERIA’S ENAIRA IS SHAPING CENTRAL BANK DIGITAL CURRENCIES IN AFRICA

Okay, so it’s February 2021, you’re a crypto trader in the tropical giant that is Nigeria. You wake up, go out to have breakfast and realize that you are unable to make transfers from your account. Further investigation will inform you that the Central Bank of Nigeria (CBN) has launched an all-out attack on cryptocurrency. Accounts have been flagged and frozen, traders are confused and outraged. It’s a war between the CBN and the crypto scene, you’re currently losing and if you will continue to do is yet to be determined.

When the CBN declared the ban on cryptocurrency, citing fears of terrorism funding, money laundering and economic instability, their heavy-handed move didn’t have the effects they expected. On the contrary, this would inadvertently spark a more ambitious and controversial range of activities. For young entrepreneurs in Nigeria’s buzzing crypto community, one of the most active in the world, who had built their entire livelihoods on digital assets, suddenly finding themselves criminalized in an attempt by the government to “protect” it’s citizens wasn’t in their bingo card. The move felt more like economic oppressive to a demographic that were already struggling with traditional banking processes.

The CBN likely sensing the growing resentment of the youths and the shifting times in tech, thought up an audacious idea to put Nigeria on the map.

In July 2021, just months after the crypto crackdown, the CBN revealed it’s plan. Unprecedented and definitely worthy of the buzz it garnered, the headlines read: eNaira; Nigeria to launch Africa’s first Central Bank Digital Currency (CBDC). It would arrive in October of the same year positioning the country as a leader in finanacial innovation.

This digital currency, to be administered by the CBN through a system called the Digital Currency Management System (DCMS) would, as loudly proclaimed by Former President Buhari, inject $29 billion into Nigeria’s GDP over the next decade. The vision: financial inclusion for millions of unbanked Nigerians, and complete government oversight of digital payments.

The launch of the eNaira was by no means a small task, as Nigeria was set to take on the role of trendsetter, it being only the second country globally to launch a CBDC, following the “Sand Dollar” of The Bahamas just a year earlier in October 2020.

THE CHAIN REACTION

The impact of the launch of Nigeria’s eNaira inspired a round of digital currency experimentation in the continent that has remained till today.

Setting Regional Precedents:

Tasked with bringing the incorporation of blockchain technology to the forefront of the financial landscape, the launch of Nigeria’s eNaira aligned with global trends as at the time and regardless of its failures or successes, it cannot be contested that it’s launch encouraged its African counterparts to actively research, pilot and consider the advantages of a CBDC of their own. If Nigeria could do it, then so could they. Zimbabwe fast-tracked its gold-backed Zig currency in 2024, to be followed by Ghana’s eCedi in later 2025. Kenya, Morocco and Rwanda to name a few all initiated digital currency research programs of their own.

Promoting Financial Inclusion:

If Nigeria managed to pull it off, the eNaira would bring hundreds of millions of Africans into the digital economy. The potential was staggering. It promised financial inclusion to a large population of unbanked Nigerians by implementing the ease of account creation that its non-Central Bank counterparts were already running. Rural and underserved communities could receive payments offline via USSD codes, finally accessing the formal economy, small businesses could process transactions with little to no cost, it was everything Africa needed.

VISION MEETS INDIFFERENCE

Nearly four years after its public release, eNaira finds itself plagued with an abysmal uptake. The ambitious vision met harsh reality: the Nigerian people did not care about it. It tells the story that legal tender status does not guarantee acceptance or adoption. The reasons behind the meagre adoption reveal critical insight that other African nations have been wise to adopt.

Crisis of Trust:

There was an overwhelming lack of user confidence in the eNaira. With the still-fresh memory of the crypto ban, Nigerians approached this digital currency with skepticism. Many viewed it as a means of surveillance by the nations government rather than the liberation tool it was being sold as. The same administration that had blocked their earlier crypto transactions were now trying to facilitate new ones with a digital currency they had total control over.

The Accessibility Issue:

Ironically, Nigeria adopted a “phased approach” where they successfully restricted access to mainly banked individuals rather than opening it up to the unbanked masses as earlier promised. While technically reasonable, this approach only slowed adoption as it effectively hindered its ability to carry out its unique value proposition.

Communication Gaps and Misalignment:

For such a large and ambitious undertaking, you would think that clear education campaigns and compelling use case education would have been a priority to ensure that this project was well received. Unfortunately, that wasn’t the case with the eNaira. Without clear communication, Nigerians found no reason to abandon payment methods they were already used to. The government had made a costly miscalculation with this project.

LEARNING FROM THE ENAIRA’S HIGHS AND LOWS

Across Africa, countries had watched and taken notes, careful not to repeat the mistakes made by Nigeria on its CBDC journey.

Prioritizing Public Education:

Countries like Kenya and Ghana learnt from this, engaging in nationwide public education and consultation campaigns explaining benefits and gathering feedback while developing their CBDCs. They learnt that true social acceptance can never be bought by way of government mandate. If adoption is to be attained, then the people must understand thatwhich they are to adopt.

Strategic Partnerships:

In Namibia and Ghana, the ongoing collaboration with fintech companies and financial institutions speaks to the lesson leant from Nigeria’s isolated approach in building a CBDC. Where a partnership with fintech and banks could have been fruitful in working to integrate existing services with the CBDC, but was ignored in Nigeria, it is not the same in other African countries.

The idea is to build bridges, connecting the traditional with the future of finance.

Targeted Problem-Solving:

Morocco and Rwanda are designing CBDCs that solve nation-specific challenges, rather than a total replication of the traditional system. Ghana’s eCedi in particular, is being sold to the people to specifically target microtransactions and small business payments, aligning their digital currencies with areas where citizens can understand their benefits.

More Deliberate, Measured Rollouts:

Project Khokha, the CBDC being developed by the South African government, is currently being built with a stance of cautious regulation, where ongoing experimentation focuses on the wholesale, testing interbank settlement first. Similarly, Namibia and Ghana are working with limited test groups to finalize on infrastructure and efficient interoperability. These processes might seem slower, but they are building robust foundations.

THE PATH FORWARD

Nigeria’s eNaira launch is a prototype of financial innovation in Africa and represents more than just a country’s CBDC ambitions. The continent faces unique challenges: cross-border payment inefficiencies, unbanked individuals in the hundreds of millions, just to name a few. Though the early results are not preferred, they are ultimately instructive. The eNaira for all it didn’t get right, has successfully proven that African central banks can deploy well-developed digital currency infrastructure. It has left in it’s wake, a roadmap of reliable dos and don’ts.

As other African nations build and launch their respective CBDCs, Nigeria’s experience offers both inspiration and warning. It may not have revolutionized payments yet, but it has undoubtedly accelerated Africa’s progress towards a digitized financial future. The digital central bank-backed  currencies revolution in Africa is just beginning and Nigeria’s pioneering is still teaching valuable lessons, its journey shaping the trajectory of CBDCs on the continent.