The First Ever Central Bank Digital Currency (CBDC) of a Largish Economy, Nigeria’s eNaira, Is Already Floundering

After being launched to great fanfare in October 2021, Nigeria’s eNaira has so far had minimal impact on the country’s economy and citizens.

Back in 2015, when the global war on cash was kicking into gear, I remarked in an article for WOLF STREET that while the countries closest to going fully cashless were in northern Europe, the most important testing ground for cashless economics was half a world away, in sub-Saharan Africa. And so it has proven. In October 2021, Nigeria became the first large country on planet Earth to launch a central bank digital currency (CBDC), the so-called eNaira. Up until then the only CBDCs in existence were the Sand Dollar of the Bahamas and the so-called DCash of the Eastern Caribbean islands.

Minimal Impact

Yet despite being launched to great fanfare, Nigeria’s eNaira has so far had minimal impact on the country’s economy and citizens. Only about 700,000 people have downloaded an eNaira wallet — a thoroughly underwhelming number in a country with an estimated population of 225 million people. eNaira transactions have also failed to pick up despite the fact that every merchant must accept payments in the digital currently. Apparently one of the reasons for this is that Nigerian lenders are impeding the adoption and use of the CBDC due to their own concerns about losing revenue from their traditional banking services.

At least that is what CBN’s Governor Godwin Emefiele says. “There is apathy,” at the banks and fintech firms because of the lack of revenue generating opportunities, Emefiele told reporters in Abuja, the nation’s capital, last week. eNaira deposits are not considered cash on the bank’s books, and their use stands in contrast to the revenues earned from mobile banking services.

Nigeria’s commercial banks are also no doubt wary — and justifiably so — about the existential threat a widely adopted eNaira could potentially pose to their basic business model. As flagged in a previous post, one possible consequence of introducing CBDCs, whether intended or not, is the disintermediation of commercial banks, which will suddenly face unfair competition from their senior market regulator, which not only sets the rules of the market but has unlimited ability to create money.

In an extreme scenario, commercial banks could disappear altogether (though one can imagine certain well-placed institutions finding a new role in the emerging paradigm). Burkhard Balz, a member of the Executive Board of the Deutsche Bundesbank, posited in a speech at the China Europe Finance Summit, in October 2020:

“What if, in times of crisis, bank deposits were rapidly withdrawn and converted into a digital euro? We call this scenario a ‘digital bank run.’ The result could be the destabilisation of the entire financial system.”

As noted in a previous article, the IMF is deeply involved in developing CBDCs, including through providing technical assistance to many of its members members, much as its Bretton Woods partner institution, the World Bank, is deeply involved in the roll out of digital identity programs across the Global South. According to the IMF’s President Kristalina Georgievan, “an important role for the Fund is to promote exchange of experience and support the interoperability of CBDCs.”

Under Close Observation

As the IMF noted in a November 2021 report, the roll out of the eNaira is being closely watched by the outside world — including by other central banks. The new digital currency is a liability of the CBN, like coins and notes. But unlike coins and notes, it runs on the same blockchain technology as Bitcoin and is stored in digital wallets. According to the IMF, it can be “transferred digitally and at virtually no cost to anyone in the world with an eNaira wallet.” This is apparently a key point given the eNaira is expected to play a significant role in facilitating remittances by Nigerians in the diaspora.

But the Fund flagged two important differences between the eNaira and cash and crypto currencies like Bitcoin:

“First, the eNaira features stringent access right controls by the central bank. Second, unlike these crypto-assets, the eNaira is not a financial asset in itself but a digital form of a national currency and draws its value from the physical naira, to which it is pegged at parity.”

This is where the problems begin to appear. First, CBN’s access right controls do not seem to be quite as stringent as the IMF had hoped. As a matter of fact, the IMF warned in a paper this February that the eNaira could even be exploited by criminals. The paper’s authors urged the central bank to stay vigilant to the risks posed by cyber-security as well as ongoing challenges in monetary policy implementation, financial integrity and stability, operational resilience, and bank funding:

There are cybersecurity risks associated with the eNaira. Unforeseen legal issues, including for private law aspects of its operations (e.g., the exact nature of legal
relationship between the wallet providers and CBDC holders), may subject eNaira to litigation and operational risks

Prospective expansion of eNaira use to cross-border fund transfers and agency bank networks may cause new money-laundering/financing of terrorism risks…”

In other words, it would seem that the central bank’s Know Your Customer (KYC) processes are not up to scratch. The paper also flagged the risks the CBN’s eNaira could pose to the financial health of Nigeria’s commercial banking sector:

eNaira wallets may be perceived as safer and more convenient than commercial bank deposits, which poses some disintermediation risks. The CBN is mitigating this by subjecting the transfer of funds from bank deposits to eNaira wallets to daily transactions limits.

Another big problem for Africa’s first ever CBDC is that it draws its value from the physical Naira, whose value has done nothing but crumble since the eNaira’s launch. At 415 units to the dollar, the currency is close to its lowest point ever — and that is based on the official exchange rate! According to local reports, the black market exchange rate, which is the rate at which most people have to convert the local currency into hard currency, is closer to 700 Naira to the dollar — a record low.

Things have gotten so bad that CBN Governor Godwin Emefiele has been summoned before a senate committee to explain why the Naira, now in its ninth consecutive year of plunging value, has been on such a long losing streak and why inflation has reached a five-year high of 18.6%. He may also be asked why Nigeria’s official exchange rate system now has a second competitor to contend with: the crypto-Naira exchange rate.

Nigerians are increasingly accumulating cryptocurrencies in a (probably vain) attempt to protect the value of their assets against a weakening Naira. This in turn is exacerbating the slump in the fiat currency, as Bloomberg reported Wednesday:

Africa’s largest economy operates a multiple exchange rate system dominated by an official rate, which is tightly managed by the Central Bank of Nigeria. There’s also an unauthorized black market, where the rates are largely determined by supply and demand, making it a fairer reflection of the naira’s value. A third, the crypto exchange rate, has emerged as Nigerians increasingly accumulate the digital asset due to scarcity of the local currency from official sources compounded by three devaluations since 2020.

More people are buying cryptocurrencies because they are losing confidence in the naira, Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria, said by phone. “The USD rate on the crypto floor is used in determining the value of the local currency,” Gwadabe said.

While financial institutions are banned by the central bank from facilitating cryptocurrency trades in Africa’s largest economy, many Nigerians still exchange the digital currency in the peer-to-peer market where transactions are priced in dollars.

According to Gemini’s 2022 Global State of Crypto report, 26% of Nigerians now own some form of crypto asset. Needless to say, the continuing growth in demand for crypto currencies in Nigeria does not augur well for the eNaira’s prospects. Nor does the opposition of the country’s commercial banking sector to the CBDC.

Applying the Brakes?

It is not just banks in Nigeria that are raising the alarm about CBDCs. In the US, the National Association of Federally-Insured Credit Unions (NAFCU) recently warned that the issuance of a digital dollar could erode financial stability, arguing that the costs and risks associated with introducing a CBDC are likely to outweigh the touted benefits. Interestingly, even the World Bank recently chimed in, cautioning that CBDCs could pose risks to financial integrity, privacy and data protection, which is admittedly a bit rich coming from an institution that has spent the past eight years driving adoption of digital ID programs across the Global South, including in Nigeria:

“The introduction of CBDC could disrupt the existing financial-intermediation structure. In addition, depending on design and country context, CBDC could pose risks to financial stability, financial integrity, data protection and privacy, and cyber resilience. Further, it can have implications for the legal and regulatory framework, increased responsibilities of the central bank, and could also lead potentially to currency substitution, especially in the context of cross-border CBDC.”

These words may reflect growing caution among the broader financial community and perhaps even some central banks regarding CBDCs as the myriad dangers they pose, including to commercial banks, become apparent. The UK-based economist and author of the critically acclaimed book, Princes of the Yen, Richard Werner certainly seems to think so. In an interview with the Reinvent Money podcast, he cites a recent article in the Financial Times which argues that central banks should for the moment focus on developing wholesale rather than retail CBDCs. There is a big difference between the two:

  • Direct access to wholesale CBDCs is restricted to banks and select financial institutions that hold deposits at the central bank. They are primarily intended for the settlement of interbank transfers and related wholesale transactions. Individual customers and businesses can only access the central bank money through financial intermediaries. This is essentially the model the People’s Bank of China is rolling out through its digital yuan pilot schemes. As Werner points out, this approach ensures that banks, both large and small, can continue to compete within a largely decentralized banking system that has played an instrumental role in China’s rapid industrialization and growth.
  • By contrast, retail or general-purpose CBDCs are open to a much broader class of agents, including individuals and businesses, all of whom will be able to hold the equivalent of a current account at the central bank (as long as they have a smart phone and don’t engage in the wrong sorts of behavior). As soon as a customer opens an account, the central bank creates digital money in the account. That money is a direct liability of the central bank, as opposed to a private bank. Using a digital money wallet or some other app, the customer can then engage in direct transactions between Fed accounts.

It is the latter (retail CBDC) that poses a threat not only to many of our basic freedoms, including the freedom to privacy and the freedom to transact, but also to the current banking system. As Werner puts it, retail CBDCs would more or less mean the end of banking as we know it: “All you need is a shock or a crisis. All the money would move from the bank deposits to the central bank and the banking system shuts down.”  This would lead to the creation of what Werner calls “mono-banking,” in which just one lender, the central bank, is able to operate.

If Werner is right and central banks are indeed beginning to apply the brakes on their CBDC experiments, it is cause for cautious optimism. It means we probably have a little more time to build opposition to a technological development that, in the words of the Washington DC-based analyst NS Lyons, arguably represents “the single greatest expansion of totalitarian power in history.” But time is still of the essence. After all, as Werner notes, once wholesale CBDCs are up and running, it won’t take much for central banks to upgrade to a retail CBDC model.





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  1. timbers

    I’ve recently heard reports that a British journalist who has for some time been reporting in and around Donbass or at least is outside the UK – as in actually being in the area and/or researching his stories in other countries – in contrast to how most “reporting” is done by the corporate media – has been “sanctioned” by London because his reports contradict the Western regime’s official narrative. I admit I’ve only heard this a few times and have not yet noticed articles on it.

    The Duran spent a few minutes explaining how serious and alarming this action is – applying sanctions aimed at nations for the purpose of regime change, to individual citizens of Britain – and noted it is clearly not legal as it violates the Magna Carta of 1812 which says the British government can not take action against individuals in such manner except through the courts.

    Point being, with a digital currency, this fellows ability to live – as in buy food, pay for shelter – could be taken away by these sanctions with the push of a government button on the whim of a bureaucrat.

    1. Thuto

      Re: your last paragraph, a similar thing is happening to a German journalist covering the Ukraine war who is colouring too much outside the approved narrative lines with her reporting. Money started disappearing from her accounts before they were finally frozen (sorry I forget her name) so it could be argued that banks sympathetic to state sponsored interventionism at the citizen level already financially deplatform dissidents.

        1. Uwe Ohse

          The Lipp case is exaggerated .

          Alina Lipp revealed that she was being subject to criminal proceedings by the German government and had received a letter from judicial authorities in her home country threatening her with a three-year jail term.

          “judicial authorities” is a broad term, meaning next to nothing.
          And most letters german authorities send contain “threats”, because our law demands that the recipient is informed about penalties in case of non-compliance. And, being germany, the wording usually is aggressive.

          She also said that Germany would hold court hearings without her. They will not allow her to present her case as it would hamper the process.

          This cannot be true, and is either a misunderstanding or a misrepresentation of the letters content. This is, simply put, not how german courts work. The accused always is heard.
          But an accused does not have the right of insight into the prosecutions files before the case is brought to court.

          I’ve never read anything Alina Lipp has written, but i think a german journalist ought to be able to parse the lovely (<–irony) letters german authorities send. But remembering my own love letters by the prosecutors office i can understand that one overreacts to them (i did that, too).

          Most likely is the following scenario: Alina Lipp got an inquiry by the prosecutors office, informing her about the possible penalties of non-compliance and the maximum penalty of the case felony she has been accused of.
          That's all. I feel for her, because that kind of letter ruins a day, but until the charges are brought to a court the impact it doesn't mean too much.

          She is accused by the German authorities of supporting the Russian invasion of Ukraine and faces three years in prison under article 140 of the constitution or a monetary fine.

          this is bogus.

          §140 of the Grundgesetz (that’s the constitution) states the a number of paragraphs of the Weimarer Verfassung of 1919 are part of the Grundgesetz. These paragraphs govern religious freedom.

          §140 Strafgesetzbuch (criminal law) might (i’m not a lawyer, and i’m happy about that) apply. It governs “Reward and approval of crimes”, and a has a maximum penalty of three years.

          i recommend against to take that india today article with a grain of salt.

          Regards, Uwe

      1. digi_owl

        Shits been going on for some time, and not just involving Ukraine.

        Cancel culture, unlike the conservative pearl clutchers of old, target the payment infrastructure rather than the courts.

        Paypal, Visa, Mastercard, they will all pull the plug on you if too much noise is produced by the twittering classes.

    2. The Rev Kev

      That’s Graham Phillips that you are talking about who has been reporting from the Donbass since the days of the first fighting. The UK was on dodgy legal ground stealing the wealth of Russian oligarchs residing in the UK but now they have really stepped over the line by sanctioning an actual UK citizen. They nabbed his bank account and possibly that of his father as well. And has been pointed out, if the UK sanctions you, there is no appeal or legal recourse as a citizen. But as you pointed out, flocking off a digital wallet would be so much easier-

  2. paul

    Point being, with a digital currency, this fellows ability to live – as in buy food, pay for shelter – could be taken away by these sanctions with the push of a government button.

    Look at at it as a goal.

    It will be far easier to control the environment, here and on mars, within an integrted oligarchy

    Their current status is a non stochastic winner, especially for their hiers, as the will have priors plus

    …and what is more important than a vibrant, extraction crazed environment!

  3. .human

    Nick, I stopped reading here:

    …can be transferred digitally and at virtually no cost to anyone in the world with an eNaira wallet.

    There are significant personal and infrastructure costs to any interaction with a network/system.

    1. flora

      How ironic that the original crypto currencies were touted as a way for scoff laws to get ’round govt regulation; now, govts’ central banks think a CBDC, a govt crypto, is a good thing… to get ’round the country’s democratic rights laws of its citizens.

  4. The Rev Kev

    Great article this. I hope that the lesson that the IMF takes away from Nigeria’s eNaira debacle is not that they must make it compulsory for all citizens to adopt a digital version of a country’s eCurrency when rolled out. I can see why the IMF did not roll this idea out in India. Modi, going by past actions, is the sort of person who would ban Rupees overnight while mandating that all one billion plus people in India transfer their wealth into an eRupee. Personally I am glad that this eNaira is a failure and I hope that the only people to adopt it were Nigerian Princess. Thing is, if the EU had rolled out an eEuro, could you imagine the problems that people in the EU would be encountering this winter with power problems disrupting normal transactions?

  5. YankeeFrank

    CBDC’s take the solution in search of a problem thing to a whole new level: a problem in search of a problem.

  6. YuShan

    Nigerians should adopt one of the non-government Asset Backed Digital Currencies that are 1:1 backed by allocated physical redeemable gold. That protects them from debasement and bank defaults (because fully allocated and direct title) while still having the advantage of instant cheap and instant international transfers and remittances.

  7. Anon

    So CBDCs are bad because they put the parasitic usury industry out of business, and grant to government ‘excessive’ power (which they already have)? We are going to have to make up our minds on who and what to trust. We acknowledge we’re hanging from a noose of private corruption; and would rather swing there, whinging, than consider antagonistic public solutions.

    1. Thuto

      This weighs on my mind too, especially because the private banking industry is itself constantly trying to chip away at the regulatory power of the state and to sequester unchecked power for itself, which it then wields in ways that are seldom beneficial to society, to say nothing of being predatory at the worst of times. It seems to me that we should be trying to mitigate against totalitarian excess agnostic to its origin (I.e. whether its the private sector or the state responsible for it).

      1. flora

        Thank you. Totalitarian excess is based on absolute centralized control, imo, either by unchecked, unregulated monopoly in the private sphere or unchecked, unregulated govt centralization in the public sphere. I think this repeats your “agnostic to its origin” comment.

    2. Nick Corbishley Post author

      No, CBDCs are bad for a whole litany of reasons. CBDCs are bad because they would grant even more power to central banks — institutions that are already dangerously unaccountable, conflicted and opaque. CBDCs are bad because they could be used to “program” our spending behavior, as the Bank of England has already hinted at. CBDCs are bad because they could be used to prevent people from being able to transact. NC readers Rev Kev, Thuto and Timbers have outlined above how governments such as the UK and Germany are already applying financial sanctions to journalists for not toeing the official line on the Ukraine war. With CBDCs, it would be so much easier to mete out this sort of punishment to non-compliant citizens. Also, CBDCs are bad because they are wholly unnecessary. They are, as a recent UK parliamentary report concluded, a solution in search of a problem.

      And yes, CBDCs are bad because, as Prof. Werner warns, they could spell the end of decentralized banking, which would in turn mean the end of most, if not all, banks, large and small, good and bad. Many people would no doubt be happy with that outcome given that big banks on Wall Street and the City of London were largely the cause of the GFC and much of the badness that has happened since. They have destroyed the lives and livelihoods of untold millions of people while committing just about every financial crime and scam imaginable along the way.

      But in most countries the banking system itself is not all bad; many well-run small banks and credit unions, for example, provide vital services to local communities. But the system does need serious reform. One good place to start, as Werner himself suggests in this 2017 interview with RT’s Renegade Inc, would be trying to ensure that bank credit creation is used for productive as opposed to speculative purposes. But instead of reforming the system, central banks seem to want to revolutionize it by using digital technologies to grant themselves total, centralized control over it — and our lives.

      1. Anon

        Werner is not offering some elusive insight. The video is from five years ago, and the solution offered became obvious post-2008 (never mind 1939), yet, here we are a decade+ later having the same discussion. That must be because the “decentralized” banking system, with all its checks, balances, and reformists, is operating as intended /sarc. At what point, does your longing for a rational world, make you an accomplice in this one? Of all the likelihoods, and possible tyrannies, CBDCs seem reasonable… Like any other financial instrument, they should be subject to law, regulation and potentially sanction. What matters is what we program it to do.

        1. flora

          er…um… well, um…”Possible tyrannies” always seem entirely reasonable… in the moment. Such “reasonable” actions are most recently exampled by mid-20th Century’s questionable history. “In the moment” it sounded oh so reasonable, in the moment. / oy.

      2. Mike

        I agree with your points except one, about the decentralized banking. At this point your average banker is a nuisance to somebody like a chase bank or citi bank. If that wasn’t true than they wouldn’t be closing physical locations. My guess is they continue to see the opportunity in the corporate space or managing our governments money like they have been for a century. I would expect a US CBDC to provide the opportunity for private banks to be a part of the system managing transactions. Some sort of further consolidation would probably happen for that. Who’s going to be battling for this space and win? CC companies? Chase/Roosevelt types? Black rock? It will be interesting to see. There are also outsiders such as gates who is by and far the leader in promoting digital ID, that could be the backbone of some some CBDCs instead of the other way around. He is smart for saying the digital ID (such as aadhaar in India) must be the foundation of managing government and private services and openly brags about being able to eliminate black markets if every transaction is traced back to a digital ID. All interesting but the repercussions are scary as we inch closer towards everything we learned in school about 1984 / F 451.

  8. Soredemos

    One of the more baffling aspects of Kim Stanley Robinson’s Ministry for the Future novel is the presentation of not only digital currencies, but crypto and carbon currencies as positive tools in confronting climate change.

    He manages to do this while also acknowledging that MMT exists. I don’t think Robinson fully grasps money and financial matters…

      1. Soredemos

        I’ve been thinking about suggesting that, but I know NC doesn’t like people making more work for the hosts.

        I think it’s a mostly good book. In fact I think because of how it handles the subject matter it’s probably one the most genuinely important works of fiction of maybe the last twenty years (another book I’d say that about would be The Water Knife).

        Just reading the publisher’s summary might lead one to think it’s just a technofetishism book, but it absolutely isn’t. It makes abundantly clear that if humanity has any hope of stopping catastrophic climate change it’s going to have to radically change how global civilization runs to the point that it has to be called revolutionary. It even presents the literal killing of the rich as justified (though rather implausibly this killing is easily stopped once it’s served its purpose. Literally the singular boss character who secretly orchestrates the killings demands they stop and the minions all listen and that plot thread ends). The book also opens with a truly horrifying first chapter in which tens of millions of Indians die in a wetbulb heatwave, which is what kicks off (slow and piecemeal) real action on the climate front.

        The book presents climate change as a global problem that requires a holistic set of solutions from the entire planet simultaneously. It’s just that some of the things he includes as solutions manifestly aren’t benificial.

    1. Sideshow Bob

      Any discussion of Climate Change that rejects nuclear power as an important piece of the solution is at best naive, and at worst criminally insane.

      Yes, there are risks with nuclear energy but they can be mitigated substantially with modern designs, and you must weigh them against the risk profile of climate change.

      Many of sustainability goals without nuclear power in the mix mean a substantially decreased world population in a short time frame and/or dramatically reduced individual freedoms for the majority.

  9. Jack Parsons

    Many African countries already have digital money, but not crypto/decentralized. The telecom carriers allow fungibility of minutes and money- you can send someone hundreds of miles away X number of minutes as a remittance. The receiver can then claim cash in various ways. This has been the case for decades.

    1. Lambert Strether

      I would speculate that most countries that leaped directly from “no computers” to “cellphones” without going through PCs support the same use case, which is obvious and in great demand. (Poor people generally have complex financial lives, and any technology that allows easy transfer between family members and to and from banks will find a ready purchase. Rich countries don’t have that demand.)

      So, another technology with no real use case from the digital money crowd. I’m just shocked.

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