Why Nigerians Aren't Turning to the eNaira Despite Crippling Cash Shortages
A lack of infrastructure, merchants and interest may all be reasons why more people in the country aren't using the digital currency.
Nigeria is struggling with severe cash shortages, with riots erupting across the country just days before a presidential election – but people are still not turning to the national digital currency, the eNaira, which promised to improve retail payments.
The digital iteration of the naira, which was issued by the Central Bank of Nigeria in October 2021, hasn’t had the most impressive start and adoption has been slow. But even if people in Nigeria wanted to turn to the eNaira, transaction options with the central bank digital currency, or CBDC, are limited.
“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, an emerging and frontier markets-focused investment bank that has a branch in Nigeria.
There may be a dearth of merchants willing to accept the eNaira, according to London-based Varun Paul, CBDC and market infrastructure director at institutional crypto custody platform Fireblocks. Paul, who previously worked at the Bank of England as an economist and head of its fintech hub, is now leading Fireblocks’ efforts to build out infrastructure for CBDC integration.
“So you have this chicken and egg problem,” he said.
At the end of 2022, outgoing President Muhammadu Buhari’s government decided to change the currency design and swap out old bank notes for new ones. The slow changeover caused ATMs to dry out quickly, and the government placed limits on withdrawals.
The country’s $220 billion informal economy stalled, and as the crisis worsened, the already weak naira fell even further against the U.S. dollar on the local forex black market.
Nigeria’s informal economy thrives on cash, and so cash shortages have left everyone from street vendors to bus drivers frustrated, Solanke added.
While protests in Nigerian cities turned violent, citizens also took to Twitter to complain about not being able to access basic necessities like fuel or food without cash.
A year after the launch of the eNaira, less than 0.5% of Nigerians were using it, Bloomberg reported. By last August, the eNaira was used to carry out transactions worth 4 billion naira ($9.3 million). Comparatively, in 2020, Nigerians conducted $26 billion worth of ATM transactions.
Since then, the central bank has tried to push adoption. The Central Bank of Nigeria announced in December that it would limit cash withdrawals for individuals and corporate organizations to 100,000 naira ($217.19) and 500,000 naira ($1,085.97) respectively by January, and encouraged banks to turn customers to cash alternatives like the eNaira.
Despite the central bank's efforts, people haven't turned to the eNaira as a solution during the current cash shortage because the necessary infrastructure wasn't in place to foster adoption, both Solanke and Paul said.
“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.”
People might have needed to be educated more on the benefits of a digital naira, according to Paul. In June 2021, Nigeria announced it may be kicking off a CBDC pilot program before the end of that year, and a Central Bank of Nigeria official said the institution had been researching a digital currency for two years. Just four months later, the eNaira went live.
Meanwhile, the European Union set up a two-year research and experimentation project for a digital euro ahead of deciding whether to issue one. If it does decide to go ahead, officials have said it could take several more years to launch. The U.K. is seeking public feedback on its recently published multiyear plan for a digital pound.
In addition to issues of infrastructure, not everyone can readily access the eNaira, Solanke said.
“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 get some of these things up and running.“
Estimates show the number of Nigerians with a smartphone may be anywhere between 25 and 40 million. Africa’s most populous nation, Nigeria is home to more than 219 million, with nearly half over the age of 18 and old enough to have a phone.
There have been some attempts at expanding infrastructure digital payments with the eNaira. In September 2022, popular African payments platform Flutterwave added the currency as a payment option for merchants.
Earlier this week, Bloomberg reported that the central bank was on the lookout for new tech partners to build out a new system to support the eNaira.
But Solanke said that “there's a lot of work that needs to happen both at the customer end and also at the merchant end to really get it up and running,” something Nigeria's next president will have to grapple with.
Nigerians are set to vote for a new president on Saturday in what could be one of the most competitive elections the West African country has seen in recent years.
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