How digital naira would affect the Nigerian economy

How digital naira would affect the Nigerian economy

As the launch of the digital Naira (E-Naira) draws near, Nigeria is now set to join countries like China (digital yuan), Bahamas (sand dollar), Eastern Caribbean (DCash) that have officially launched their own national digital currencies.

The Central Bank of Nigeria (CBN) recently announced plans to launch its own digital currency before the end of the year. The ‘digital Naira’ would be issued by the CBN and held in digital wallets.

CBN Director, IT Department, Rakiya Mohammed, stated that the innovation would benefit the fintech ecosystem by enhancing operational efficiency, opportunities for fintech start-ups in building services and products as well as financial inclusion that will contribute to economic growth, and the creation of a new system complimenting the traditional payment system.

“We have spent over two years studying this concept of the central bank’s digital currency and we have identified the risks. And it is one of the reasons why I said we are setting up a central governance structure that would involve all industry stakeholders to assess all the risks as we continue on this journey”, Mohammed said.

At this juncture, it is important to note that digital currencies are not the same as crypto currencies. While all crypto currencies are digital currencies, not all digital currencies are crypto currencies. Digital currencies are forms of money or cash available in non-physical (electronic/virtual) forms, typically issued by Central Banks and are subject to all the scrutiny and government backing of fiat currencies.

They are also only accessible via internet-enabled devices. Crypto currencies, while being digital, are not issued by Central banks or tied to any entity, government, institutions or individuals (they are not centralized). Crucially, the crypto space is devoid of regulation, hence the wild fluctuations witnessed daily in response to market forces.

While the risks associated with the growing use of digital currencies are clear and evolving, the CBN is banking on embracing the emerging digital world and reaping its benefits. The CBN would use electronic coins or notes instead of printing physical money.

This would lower the costs of currency management. The use of digital currencies will cut off intermediaries like banks or clearinghouses and drastically lower the cost and time involved in cross-border transactions.

Remittances and trade finance, especially with the launch of AfCFTA, will be major beneficiaries. The speed of transactions will increase and enhance the velocity of circulation of money, which will boost economic activity.

Some other benefits include the potential to reduce cash handling costs by 5-7 percent, deepening digital financial inclusion and promoting the development of e-commerce, create a reliable mechanism to distribute fiscal stimulus to citizens, reduce tax leakages due to tax evasion and illicit money flows, reduction in the overall indirect cost of cash on the broader community, enable Public-Private Partnership and Innovation of opportunities in the financial system as new business opportunities arise from emerging business models, financial products and services.

                                                                                                              BusinessDay, Aug 5, 2021