Even though there is a severe cash shortage in Nigeria and riots are breaking out all over the country just days before the presidential election, people are still not using the eNaira, the country’s digital currency intended to improve retail payments.
The Central Bank of Nigeria began issuing the digital naira in October 2021, but its adoption has been slow, and it hasn’t had the best start. However, there are few ways to transact with the central bank’s digital currency, or CBDC, even if people in Nigeria want to use the eNaira.
“They want to put it out there to get people to use it, but people don’t have enough places to use it,” said Nigerian native Adesoji Solanke, a director at Renaissance Capital. This emerging and frontier markets-focused investment bank has a branch in Nigeria.
According to London-based Varun Paul, CBDC and market infrastructure director at institutional crypto custody platform Fireblocks, many businesses might not be willing to accept the eNaira. Paul, a former economist and head of the Bank of England’s fintech hub, is now in charge of Fireblocks’ efforts to develop the infrastructure for CBDC integration.
“So you have this chicken and egg problem,” he said.
The outgoing President Muhammadu Buhari government decided to replace old bank notes with new ones at the end of 2022. ATMs quickly dried out due to the slow transition, and the government imposed withdrawal restrictions.
The $220 billion informal sector of the economy stagnated, and as the crisis grew worse, the already fragile naira lost even more ground to the dollar on the local black market for foreign exchange.
Cash shortages have angered everyone from street vendors to bus drivers because Nigeria’s informal economy depends on it, added Solanke. Nigerians complained on Twitter about not being able to access basic necessities like fuel or food without cash as protests in the country’s cities descended into violence.
According to Bloomberg, less than 0.5% of Nigerians used the eNaira a year after its introduction. By August of last year, 4 billion naira ($9.3 million) were made using the eNaira. For comparison, Nigerians used ATMs for transactions totalling $26 billion in 2020.
The central bank has since made efforts to promote adoption. The Central Bank of Nigeria declared in December that it would restrict cash withdrawals for private citizens and corporate entities to 100,000 naira ($217.19) and 500,000 naira ($1,085.97) respectively, by January and urged banks to direct customers to cash substitutes like the eNaira.
Despite the central bank’s efforts, Solanke and Paul claimed that the lack of the necessary infrastructure prevented people from adopting the eNaira as a cash substitute during the current cash shortage.
“I think there’s a couple of things they may have wished they did better,” Paul said, referring to Nigeria’s leaders. “One is they went out faster than anyone else, whereas other central banks around the world are researching a lot longer.”
According to Paul, people might have needed more information about the advantages of digital naira. A Central Bank of Nigeria official stated the organization had been looking into a digital currency for two years when Nigeria announced in June 2021 that a CBDC pilot program might begin before the year’s end. The eNaira went live only four months later.
Before deciding whether to issue a digital euro, the European Union established a two-year research and experimentation project. According to officials, it may take several more years to launch if it decides to move forward. On its recently released multiyear plan for a digital pound, the U.K. seeks feedback from the general public.
In addition to infrastructure problems, not everyone has easy access to the eNaira, according to Solanke.
“The challenge is that the wallet requires you to have a smartphone and use the internet, but think of the people you’re trying to send money to; they’re relatively poor, right?” Solanke said. “So the cost of the smartphone, the cost of the internet, these are just some of the hindrances to getting some of these things up and running.“
According to estimates, Nigeria has between 25 and 40 million smartphone owners. Nigeria is the most populous country in Africa, with over 219 million residents, nearly half of whom are adults who can use a phone.
With the eNaira, there have been some attempts to increase infrastructure for digital payments. The currency was added as a payment option for merchants in September 2022 by the well-known African payments platform Flutterwave.
According to a Bloomberg report earlier this week, the central bank was searching for new tech partners to develop a new system to support the eNaira. But according to Solanke, “there’s a lot of work that needs to happen both at the customer end and also at the merchant end to get it up and running.” This is a challenge for Nigeria’s next president.