In 1995, Neal Stephenson published a science-fiction titled, The Great Simoleon Caper. In this work, Stephenson referenced a cryptographic e-money consisting of “numbers moving around on wires.” Twenty-six years later, that nerdy fantasy is a reality. The Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada have launched digital currencies as legal tenders.

The Central Bank of Nigeria is joining this list with the launch of the e-Naira today, October 1st 2021 — a central bank digital currency that will operate using blockchain technology. Interestingly, this initiative picked up steam after the apex bank restricted commercial banks from processing cryptocurrency-related transactions. Notwithstanding, the launch of the e-Naira is promising for Nigeria, as it would provide ground for better financial inclusion.

Less cash, more wealth

The Bahamas, like most other countries, was badly hit by the COVID-19 pandemic. Productivity levels were drowning in 2020 as many were unemployed and businesses had to close down. Consequently, the economy tanked by 17.15 per cent to $11.25 billion in GDP as cash circulation had slowed down significantly. But in the same year, its government rolled out the Sand Dollar — a digital form of its currency as a legal tender. Consequently, the country’s GDP is expected to reach 12.60 USD Billion by the end of 2021, according to Trading Economics global macro models and analysts expectations.

This “money through wires” does not only ease cash flow. According to Dr Kalu Aja, a financial expert, it also comes with the positives of lower transaction costs and rounded-up inflation. “I think it will eliminate the cost of transactions (COT) as a whole,” he said. “It will make more Nigerians financially included because you can now get your salary without having a bank account.”

As the world explores digital alternatives to paper bills, new opportunities for wealth creation are unlocked.

Cryptocurrencies such as Bitcoin are among the most talked-about financial assets today. This is partly because this new money wave has helped many people increase their wealth. As of today, the global cryptocurrency market capitalization is close to $2 trillion. Aside from speculation, many new businesses and jobs have sprung out from this growing industry. Notable examples are exchange and trading platforms such as Patricia, FTX and Roqqu. Also, blockchain experts are now in higher demand than ever before.

Nigeria, Africa’s largest economy, is not left out of this movement, as it is recognized as Africa’s largest cryptocurrency market. Its large peer-to-peer market has also become a source of income for many Nigerians as they now earn from direct trading of Bitcoin and other cryptos.

Nigerians adopted cryptocurrencies for a range of reasons including hedging, speculation and ease of payments. They, however, operate on decentralized systems (have no central authority), meaning the government neither has a say over transactions nor a direct way to cash in on them. The e-Naira, on the other hand, is centralized in its operation as the central bank is in control.

Diaspora remittances are Nigeria’s second-largest source of foreign exchange. However, diaspora declined by 27.7 per cent to $16.8billion in 2020, according to the World Bank. The central bank of Nigeria expects the e-Naira to help increase remittances, thereby boosting economic growth. 

The big bet

As a currency, the e-Naira does not have any speculative value apart from that of the naira. As a result, speculators may not have anything new to profit from it. However, the big bet is on the fintech space.

After the CBN distributes the minted digital currencies to the banks, the retail public would need to receive them. According to Dr Kalu, for this to happen, there needs to be a whole new infrastructure for the e-Naira. “Apps and add-ons will start to take effect. Things like POS and payments have to be linked to the e-Naira. Instead of making payments with a card, you can now do it directly with your phone. So, all that infrastructure has to be there, and to that end, we are going to see new apps and hardware, either as add-ons or as standalone. The same way we had the PoS rollout when we had mobile banking, we are going to see something similar.”

The CBN introduced the PoS system and agent banking in 2013 to achieve financial inclusion and develop a cashless economy. This has evolved into a massive wealth generation and employment channel for Nigerians. In the first half of 2021, the value of PoS transactions in Nigeria spiked to N3.01 trillion, with a total volume of 462.11 million transactions in the same period. According to the National Financial Inclusion Strategy 2019 report, the total number of agents in the country jumped 517 per cent between 2017 and 2019, and the individual companies are reporting higher numbers.

Despite the exponential growth of agency banking in Nigeria, there is still a large gap to fill in financial inclusion. Data from EFInA shows that only 64 per cent of Nigerian adults were financially included by the end of 2020. This means that 36 per cent of Nigerian adults, or 38 million adults, remain financially excluded.

MTN, Nigeria’s largest telecom company, and OPay, Paga and TeamApt, have become the biggest agency banking fintechs in the country. These companies made fortunes by betting on Nigeria’s wide financial inclusion gap, coupled with its surging growing unemployment rate. Therefore, speeding up the adoption of the e-Naira through agency banking is a great opportunity for Nigeria’s fintech space.

“I think because it’s a blockchain, it has to be new software, and for that, you may need new hardware,” said Dr Kalu. “This one involves open ledger, burning, minting and so on. It’s new. If you look at the PoS, it’s simply naira on a chip on your card. This is not going to be on a chip, so we’ll be having new infrastructure. The CBN is just doing the groundwork, more or less like laying the cables. It’s not a complicated thing. M-Pesa has been working in Kenya.”

Written by Oluwatosin Ogunjuyigbe

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