In October 2021, Nigeria became the first African country to roll out a central bank digital currency. In addition to enhancing financial inclusion, the eNaira was touted for its ability to facilitate remittances and complement existing payment solutions. More than two years later, the digital currency has struggled to gain adoption among the populace.
As cryptocurrencies gained mainstream attention, central banks across the world considered ways to leverage blockchain technology in mainstream finance. The outcome of that proposal was a digital version of national currencies that would complement the existing traditional finance system.
Understanding eNaira
The eNaira is a digital representation of the Nigerian Naira, designed to be used alongside traditional currency. Unlike cryptocurrencies such as Bitcoin, which operate on decentralized networks, the eNaira is issued and regulated by the CBN, making it a sovereign-backed digital currency.
The eNaira is accessible through a digital wallet, which can be downloaded on smartphones. This wallet allows users to make payments, transfer money, and store funds electronically. As such, users can exchange the digital currency without any intermediaries. The CBN has implemented measures to ensure that the eNaira is easy to use, even for those with limited technological experience. For instance, the eNaira app is designed to be user-friendly and available in multiple languages, catering to Nigeria’s diverse population.
Less than 0.5% of Nigerians were using it a year after it was launched, nevertheless. This centralised control perhaps explains why CBDCs have remained largely unpopular. The enaira, for instance, is regulated by the Central Bank of Nigeria. In an increasingly digital world where data protection is most valued, this raises concerns about privacy. As a digital currency, the eNaira is vulnerable to hacking and cyber-attacks, which could compromise user data and funds.
While the Central Bank of Nigeria has promoted the eNaira as a tool for financial inclusion, especially for the unbanked population, the reality is that access to digital financial systems still requires a certain level of infrastructure. Many rural areas in Nigeria lack reliable internet connectivity and the necessary technology, such as smartphones, to access digital currencies. This is compounded by a general distrust in financial institutions and government initiatives. Ensuring that the eNaira reaches all Nigerians, including those in rural and underserved areas, requires addressing these infrastructural and educational gaps.
While Nigeria has a vibrant and tech-savvy youth population, many are sceptical about government-backed financial innovations, largely due to a history of economic policies that have not favoured the average citizen. Many Nigerians are still unclear about how the eNaira differs from traditional fiat currency or how it differs even from cryptocurrencies like Bitcoin and Ethereum. The eNaira, for example, is equivalent to one naira.
As such, the eNaira faces stiff competition from established cryptocurrencies. Nigeria is one of the largest markets for cryptocurrencies in Africa, with a significant number of young people and businesses adopting them for transactions and as a hedge against inflation. At least 33 percent of the population invests in cryptocurrencies today. Beyond anonymity, cryptocurrencies offer decentralisation and freedom from government control that the eNaira does not. For many Nigerians, especially those distrustful of the government’s financial policies, these attributes are highly appealing. Moreover, eNaira’s integration into existing banking systems does not provide the same opportunities for speculation and investment that attract users to cryptocurrencies.
Economic Challenges
Nigeria’s economic situation also plays a significant role in the eNaira’s reception. With high inflation rates and a struggling economy, many Nigerians are more focused on day-to-day survival than on adopting new financial technologies. The eNaira, being pegged to the naira, does not offer protection against inflation, which is a critical factor for those looking to preserve their wealth. In contrast, cryptocurrencies, despite their volatility, are often seen as a better store of value.
There are also regulatory concerns. The Central Bank of Nigeria has placed restrictions on cryptocurrency transactions, which has created uncertainty in the digital currency space. While the eNaira is government-approved, the broader regulatory environment around digital currencies in Nigeria remains unclear, leading to caution among potential users.
While the concept of a digital currency holds promise, the Nigerian government needs to address these issues to increase the eNaira’s adoption and capitalise on the growing interest in digital financial systems
In October 2021, Nigeria became the first African country to introduce a central bank digital currency (CBDC), the eNaira, with aims to boost financial inclusion and enhance remittances. However, the eNaira has faced challenges in gaining widespread adoption.
The eNaira is a digital version of the Nigerian Naira, managed by the Central Bank of Nigeria (CBN). It can be accessed via a digital wallet on smartphones, allowing users to make payments and store funds without intermediaries. Despite its user-friendly design, less than 0.5% of Nigerians used it within a year of its launch.
Challenges to its adoption include concerns about privacy and data security due to its centralized regulation by the CBN, as well as the lack of necessary infrastructure in rural areas, such as reliable internet connectivity and smartphones. Additionally, there's general distrust in government initiatives and unfamiliarity with how the eNaira differs from traditional money or decentralized cryptocurrencies like Bitcoin.
Nigeria's significant cryptocurrency adoption among its youth further compounds the issue, as these digital assets offer decentralization and protection from inflation—advantages the eNaira lacks. Moreover, Nigeria's economic troubles, including high inflation, make cryptocurrencies a more attractive option as a store of value.
Regulatory uncertainty around digital currencies also poses a barrier. Despite the potential of a CBDC, the Nigerian government must address these critical issues to improve the eNaira's adoption and leverage the growing interest in digital financial systems.
