The Central Bank of Nigeria is undeterred. To deepen its drive to “entrench a cashless economy” and boost take-up of the eNaira, it is launching a demonetization process not too dissimilar from India’s.
This is, in essence, an update of a story first covered on Naked Capitalism back in July. As I remarked in that piece, Sub-Saharan Africa has proven to be a fertile testing group for live experiments in both cashless economics and digital identity, which essentially go hand in hand with one another. As part of that general trend, Nigeria, with the help of the IMF, became the first large country on planet Earth to launch a central bank digital currency (CBDC), the so-called eNaira. That was in October 2021. And central banks and financial institutions around the world have been watching developments closely ever since.
The launch of the eNaira had many ostensibly laudable objectives — at least according to the Washington-based think tank Atlantic Council. They include (remarks in brackets my own): enhancing the availability and access to central bank money; encouraging financial inclusion (by extending exploitative and abusive financial services to those previously excluded (h/t Jomo Kwame Sundaram)); facilitating direct welfare disbursement to Nigerian citizens; boosting the government’s revenue and tax collections; facilitating diaspora remittances and reducing the cost of cross-border payments. It was also supposed to take the shine off cryptocurrencies, which are widely used in Nigeria.
But CBDCs also have a very sinister side. They would grant yet more centralized power to central banks — institutions that are already dangerously unaccountable, conflicted and opaque, and which have played a leading role in stoking the financial bubbles and resulting crises of recent times. They could be used to track our spending or even “program” our spending behavior, as the Bank of England has already hinted at. They could be used to prevent people from even being able to transact. They could also deliver the final death knell on physical cash, one of the last remaining vestiges of privacy and anonymity.
At the same time, CBDCs are wholly unnecessary, a solution in search of a problem. At a recent bash in Miami, even central bank officials failed to reach a consensus on whether there was an actual need for them.
“Everybody’s trying to identify concepts. There’s still not a clear business happening,” said a central banker. We’re in a stage of figuring out ‘what is what’,” they said.
Disappointing Results
In Nigeria, both the central bank and government have pulled out all the stops to boost the eNaira’s chances, including banning financial institutions from enabling cryptocurrency transactions seven months before its roll out. The Central Bank of Nigeria (CBN) also received technical assistance and policy support from the IMF, one of the main driving forces behind the roll out of CBDCs globally.
Yet the results of the project, now in its second year, have been dismal. The eNaira recorded just 700,000 transactions worth ₦8 billion ($18 million) in its first year. By August only 905,588 people had downloaded an eNaira wallet — a thoroughly underwhelming number in a country with an estimated population of 225 million people. Worse still, only 282,600 of those accounts were currently active. Meanwhile interest in cryptocurrencies has continued to rise despite the ban, as Bloomberg reports.
While the eNaira uses similar distributed ledger technology to Bitcoin or Ethereum and can be saved in digital wallets, Nigerians’ passion for cryptocurrencies doesn’t extend to the central bank offering.
Virtual currencies have lured residents of Africa’s top oil producer as a hedge against inflation and currency depreciation, but eNaira is seen as a proxy for the challenges facing the continent’s biggest economy and a symbol of distrust in the ruling elite.
Educating Nigerians about the digital currency is a key task for both the central bank and the government. As the largest economy to fully launch, it’s also being scrutinized by the more than 100 nations considering their own CBDCs, according to Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center.
“Nigeria’s project is hugely important to the world,” he said. “My bottom line on Nigeria is the jury is still out, but the world is paying close attention to what they’re doing.”
Lipsky’s definition of the word “world” is extremely narrow. It includes central bankers and other influential stakeholders (governments, tech giants, fintechs, private wealth foundations and think tanks like the Atlantic Council) that would like to see CBDCs take root. This is the world that matters. Most other people in the world are not even aware what CBDCs are, or how their imminent roll out could transform their lives, for a simple reason: there is no public debate on the matter…
Read the full article on Naked Capitalism
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Author Nick Corbishley
