ISSUES AND RISKS ASSOCIATED WITH THE NIGERIAN DIGITAL CURRENCY (E-NAIRA)

ISSUES AND RISKS ASSOCIATED WITH THE NIGERIAN DIGITAL CURRENCY (E-NAIRA)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

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.

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