Nigeria Launches Africa’s First Government Sponsored Digital Currency
The eNaira is meant to provide easy access to money and money transfers from any internet connected device (enaira.gov)
Nigeria launched its new digital currency on October 25, titled the eNaira. The government hopes that the currency will help digitize payment and allow citizens to access and transfer money easily.
President Muhammadu Buhari believes that the ease of use of the eNaira can help increase Nigeria’s GDP by $29 billion over the next decade. The digital currency will be particularly useful for Nigerians living overseas who send remittances back into the country; the use of a fully electronic currency allows remittances to arrive faster and with far fewer fees since transferring money between accounts is free.
The government also hopes the eNaira will encourage Nigerians to stop using independent cryptocurrencies like Bitcoin to pay remittances. Cryptocurrencies have become massively popular in Nigeria as a way to avoid the up to 20 percent fees that can come with regular bank transactions. Naira remittances have fallen from $23.8 billion in 2019 to $17.2 billion in 2020, likely due to cryptocurrency use.
In response, the Nigerian government banned cryptocurrency in February 2021. The government reasoned that the ban was necessary to protect citizens from financial risk. It also sought to drive citizens back to the Naira, which has seen its value plummet over the past two years as the Central Bank of Nigeria devalues it to try to increase exports.
The government has championed the eNaira as a way to provide welfare directly to the needy. This is particularly important because 36 percent of Nigerians are currently excluded from the financial system since they do not have a bank account. However, the eNaira only requires a phone number to open an entry-level account, hopefully giving millions of Nigerians an easy way to access welfare funds.
The government has also sought to dispel fears over the safety of using a purely digital currency. The eNaira was designated “critical national infrastructure,” although what security measures that entails is unclear. There are obvious security risks; North Korea has previously hacked the central bank of Bangladesh, and a lack of familiarity with electronic currency systems may make citizens more vulnerable to phishing attacks.
The launch makes Nigeria the sixth country in the world to roll out a digital currency and the first in Africa. The success or failure of the eNaira will likely influence Ghana, Morocco, Tunisia, Kenya, and Madagascar, all of whom are in the planning phases of adopting a similar style of digital currency.