By Ikaay Ugbodaga

THERE  has been a lot of buzz about central bank digital currencies, or CBDC’s in recent years. Policymakers and the media have lauded the technology’s numerous opportunities and challenges.In truth, cryptocurrencies’ astronomic rise has led 112 countries to research how digital currencies could be the future of the monetary system and effectively transform global trade as we know it. Eleven CBDCs have been launched till date, including those in the Bahamas, Eastern Caribbean states, Jamaica, and Nigeria. The European Central Bank is aiming to introduce the e-Euro by 2025.

Connecting the dots between e-Naira and tax revenue mobilisation: To the average Nigerian consumer, Crypto currencies, and stable coins are essentially the same thing, and the suspicious timing of the launch of the e-Naira in October 2021 further created distrust in Nigeria’s Central Bank because it seemed the opposite of its mantra, “Crypto Bad”, prior to its launch, resulting in a staggeringly low adoption rate of just 0.5 per cent since its launch. This has led to most critics terming the e-Naira a ‘colossal failure’ because of its low acceptance and general distrust from the public.

Contrary to popular opinion, I do not think the e-Naira is a failure like the sceptics think. It is obvious that e-Naira’s low adoption stems from a lack of understanding of the positive role that the CBDC could play in the lives of the general population, and what it can do in solving Nigeria’s various fiscal and monetary woes.

Most of its present issues post launch stem from a lack of answers to the numerous questions that Nigerians have been asking, and this effectively reduces the already poor public image of the e-Naira, thereby fueling its low acceptance rate amongst the tech savvy populace. So, what exactly is e-Naira? Why should we care? Could it improve Nigeria’s cross-border transactions? Could it solve Nigeria’s tax revenue mobilisation woes? Or would a lack of transparency give rise to bad actors? These are the questions on the minds of millions of Nigerians. 

What is the e-Naira? The e-Naira is a Central Bank Digital Currency, a digital form of central bank money that is widely available to the general public, made using permissioned blockchain technology. A permissioned blockchain is a distributed ledger that is not publicly accessible.

It can only be accessed by users with permissions. The users can only perform specific actions granted to them by the ledger administrators and are required to identify themselves through certificates or other digital means. All of this simply means that the CBN can easily track payments because the anonymity of the user is removed with permissioned blockchain, allowing wallets to be tracked to the user.  

Why should nigerians be excited about the potential of the e-Naira? As the crypto winter sets in, a lot of Nigerians have been burned by investing in cryptocurrencies. The most recent example is the collapse of the crypto exchange known as FTX, which has resulted in a large number of Nigerian investors losing money in something they thought could future-proof their assets in the face of a dwindling Naira. Compared to ‘stable coins’, the e-Naira will not be volatile but be pegged to the current naira value, but most importantly, it will allow for simpler and more efficient cross-border transactions.

As a Nigerian student studying in the US, upkeep sent to me by my parents is always under constant scrutiny by US banks, and the fastest time I received money was after seven business days while the slowest time I received money was 14 days, and this is due to the SWIFT/BIC codes, which essentially slow down transfers and reduce efficiency and could potentially cost lives if that money is needed urgently.

The e-Naira would allow Nigerians to skip any intermediary or third party, and transfer remittances and upkeep almost instantly. Apart from this, I have noticed that if I pay for anything Nigeria related, my bank immediately flags that transaction as fraudulent, and the adoption of the e-Naira could solve this problem that I am sure other Nigerians have experienced as of late.

 The role of e-Naira in tax revenue mobilisation in Nigeria: Nigeria has one of the largest informal economies in the world. The size of Nigeria’s informal economy is estimated to be 57.7 per cent of GDP, which represents approximately $1,116 billion at PPP levels. The e-Naira could help alleviate the issues of tax revenue mobilisation by giving access to millions of adults that have no means to access any financial institution, therefore promoting financial inclusivity. The ability to generate tax revenue from the e-Naira would allow the government to invest in key infrastructure that could benefit Nigerians living in poverty. Furthermore, it would give the populace more access to public goods such as a well-connected road system and clean water.

This would essentially give the government and the CBN much needed control over the economy as it seek to improve the nation’s development and meet their goal of lifting a 100 million Nigerians out of poverty by 2030. The e-Naira would also allow the CBN to have improved monetary policy management. This means that the CBN would be able to track each naira, lower the cost of printing new notes, and reduce the money supply or raise interest rates, if need be, to combat inflation. Therefore, there will be better oversight over the money supply.

I urge Nigerians, especially the skeptics, to embrace this technology because its benefits far outweigh its costs. Just like the launch of any new technology, there will always be problems and challenges that emerge, and as it matures, various solutions through innovations will tackle those problems. The focus of the CBN should be to fix e-Naira’s broken image by collaborating with commercial banks to educate Nigerians on its potential and what it can do to improve the lives of millions of people.

Ugbodaga, an undergraduate researcher and quantitative economics, wrote from Northfield, Minnesota, USA