The Evolution of the Nigerian Monetary System through Central Bank Digital Currencies (Part 1)

Davidson Oturu and Oluwapelumi Omoniyi

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The financial landscape of Nigeria is never static. Constantly evolving, new services and products are periodically introduced that change the way Nigerians interact with Financial Institutions (“FIs”) and the Nigerian monetary and payment system. Not so long ago, Automated Teller Machines (“ATMs”) and Point of Sale (“PoS”) Terminals were considered new and innovative. Today, Nigerians that own bank accounts may also have a debit card which enables them to move around without cash and use ATMs and PoS terminals.

Furthermore, with the creation of the Nigerian Interbank Settlement System (“NIBSS”) which serves as the central switch for Nigeria, internet banking was introduced which helps Nigerians easily transfer money to another customer within minutes rather than standing in long queues at banking halls just to achieve the same objective. Subsequently, there has been the introduction of mobile banking and mobile money which has made the banking process seem less cumbersome.

These payment systems and methods now serve as the backbone for the Payment Infrastructure in Nigeria, and it seems that the Central Bank of Nigeria (“CBN”) wants to create other extensions to support and complement the infrastructure through the creation of its own digital currency called the eNaira.

In this article, we examine what central bank digital currencies (“CBDCs”) are, take a look at the eNaira and the steps that have been taken by the CBN to implement it, the issues that may arise with the creation, adoption, and use of CBDCs, and conclude with our answer to the question stakeholders have been asking, “Do we need the eNaira?”.

CBDCs Explained and Distinguished from Crypto

The Bank for International Settlements (“BIS”) released a report in March 2018 on CBDCs which offers different definitions for CBDCs. The first is a simple one which defines CBDCs as a new form of digital money. The more in-depth definition is that CBDCs are “a digital form of central bank money that is different from balances in traditional reserve or settlement accounts”.

In another report in 2020 written by various central banks, CBDC is defined as a digital payment instrument, denominated in the national unit of account, that is a direct liability of the central bank. The physical cash that we carry about is a legal tender because it has the backing of a centralised institution which is the Central Bank or similar entities in various jurisdictions. Commercial banks and individuals trust in the legal tender largely because it is being issued by a single entity. So CBDCs are digital iterations of the physical legal tender we all carry around to exchange value.

This is one of the major differences between cryptocurrency and CBDCs. While CBDCs are issued by a centralised authority, and have the backing of traditional FIs, cryptocurrency is built on blockchain technology which ensures the decentralisation of the creation, regulation, and use of cryptocurrency through the use of decentralised computer networks. There is no single authority that issues cryptocurrency as every single token or coin is produced, destroyed, and (before any transfer is carried out) verified by miners.

Another difference is that cryptocurrency is secured by cryptography, a form of communication that makes it hard for third parties to obtain information about such communication, thus making cryptocurrency largely anonymous. CBDCs on the other hand may be made anonymous by the issuing entity; however, it will still have access to the information provided by the users of the CBDC and will be able to trace transactions easily. Also, CBDCs use digital ledgers, recording and storing transactions on a digital storage infrastructure, like cloud-based storage. These digital ledgers may be created by the use of Distributed Ledger Technology (“DLT”) and blockchain technology, which largely backs cryptocurrency or the issuing entity may use a central data storage for its CBDC transactions. Cryptocurrency does not have the luxury of picking how to store and record its transactions as the very nature of it demands that DLT should be used as cryptocurrencies are native to a blockchain. Consequently, CBDCs are not cryptocurrencies.

CBDCs are generating buzz in the global monetary and payments system because the potential adoption and use of CBDCs can have far reaching implications on the global financial system. We will highlight some of the potential benefits below.

Cross-Border Payments: Though most CBDCs are created with the focus on its use in the domestic sphere, CBDCs can create a faster and more efficient cross border payment infrastructure for the world. The BIS in July reported to the G20 about the use of CBDCs to make cross-border payments easier. In the report, the BIS highlighted the issues with cross border payments which are, high costs, low speed, too many entities in the transaction chain, etc. The BIS states in the report that CBDCs have the potential to enhance the efficiency of cross-border payments, and the issuance and use of a CBDC for cross-border payments could potentially help simplify intermediation chains, increase speed and lower costs.

The BIS posit in their report that if one of the CBDC designs they suggested are adopted (which is the creation of arrangements between central banks which allow foreigners access CBDCs and settle transactions with the use of the CBDC), it could change the way business is carried out on a global scale. The report informs the G20 that cross border use is one of the major motivations for central banks on their journey to create their own CBDC.

Cost of Cash:The International Monetary Fund (“IMF”) on its blog, posits that the cost of managing cash is very high in some territories due to geographical and environmental conditions. For instance in 2019, the CBN spent more than N64 million on printing money. CBDCs could lower costs associated with providing a national means of payment through printing physical cash and essentially save the amount of money spent on the circulation and removal of physical notes in the monetary system.

Financial inclusion: According to the World Bank, about 1.7 billion adults do not have a bank account. In Nigeria, as at 2018, 60 million adults were unbanked. Central banks and various players are looking for mechanisms to create access to financial products for their citizens and CBDCs may be one of those ways. Why? Because they only need minimal Know Your Customer (“KYC”) requirements. All they require is internet connectivity, a smart phone, and a digital wallet. With internet penetration on the rise, and the adoption of cheap smartphones that have the processing power to handle digital wallets, CBDCs can potentially become a tool to give financial access to the unbanked and underbanked.

These benefits and more, have led to the Central Bank of the Bahamas issuing their own digital currency called the “Sand Dollar” in October 2020 and has prompted the Peoples Bank of China, the Bank of England, the European Central Bank, and other central banks, including the Central Bank of Nigeria, to kickstart their respective CBDC projects.

The CBN and eNaira

In July 2021 during the 306th Banker’s Committee Meeting, the CBN Governor, Godwin Emefiele, announced that the CBN will start working on a digital currency and in that same month, a press briefing and a private webinar was held to describe how the digital currency would be designed and when it would commence. During the briefing, the Director of the CBN IT department, Rakiya Mohammed, explained that the CBN had been interested in a digital currency since 2017 and had been conducting its own research. She revealed that the name of the project is “Project Giant” and the digital currency will be called eNaira. She also stated that the CBN had opted to build the eNaira on a DLT with the use of the Hyperledger Fabric Blockchain.

During the webinar and the press briefing, the CBN specified that it planned to use the eNaira for cross border trade facilitation, financial inclusion, monetary policy effectiveness, improved payment efficiency, revenue tax collection, among other things. The apex bank also said that it believes that the eNaira will help FinTechs with their operational efficiency and product building. The CBN reiterated that the eNaira will not replace the traditional payments system and that it would only serve as an assistant to it, and stated that by 1 October 2021, the eNaira will be available for use.

In August 2021, the CBN showing its intent to meet up with its self-imposed deadline, sent a presentation to commercial banks in Nigeria which detailed various aspects of the eNaira. In the presentation, the CBN explained the operating model of the eNaira, the participants in the project, a high-level summary of the use cases of the eNaira, the role banks will play under Project Giant, and other relevant concerns about the project. The CBN declared during the presentation, that the eNaira is a National Critical Infrastructure, and will be subject to daily comprehensive security checks and all personal data will not be stored on the Hyperledger Fabric Blockchain. During the presentation, the CBN also discussed how Nigerian banks will onboard their customers unto the eNaira ecosystem.

In the concluding part of this article. We will delve further in the introduction of the eNaira and how it could potentially change the monetary system in Nigeria.





Ælex is a full service Commercial & Dispute resolution law firm with offices in Nigeria and Ghana. Contact us:; @aelexpartners on LinkedIn,  Twitter,  Instagram and Facebook[email protected]

Ælex Notes is a dedicated column, managed by Ælex Legal Practitioners and Arbitrators, featuring legal developments and insights.


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