eNaira is Africa’s first digital currency for Nigeria and is issued by the central bank.
This new CBDC will be used to compete with other popular cryptocurrencies that are popular with young Nigerians and will bring the technology of blockchain with it.
Nigeria’s new digital currency will make finance more accessible, enable direct payment to citizens from the government, and facilitate international transactions easier.
What are Central Bank Digital Currencies (CBDC)?
You might have heard of bitcoin or ethereum, which are digital currencies. They use complicated security methods to keep transactions safe and control the creation of new money.
They also operate on a digital system called blockchain, which keeps track of all the transactions.
CBDCs are digital versions of a country’s currency. They’re like online money.
Think of digital currencies as money that only exists on the internet.
When a central bank, like the CBN, creates its version of digital currency, it’s called a CBDC.
Why would a country create a CBDC?
Central banks want to make digital versions of their money to enjoy some of the benefits that bitcoin and ethereum offer. One cool thing about digital money is that it doesn’t cost much to make transactions because there aren’t many middlemen involved.
Imagine when you use regular money like naira or dollars for transactions, it goes through many people, which makes it cost more. Depending on the transaction, the middlemen could be banks, card companies like Visa or Mastercard, or even organizations like the Nigerian Inter-Bank Settlement System (NIBSS).
But with digital money, a safe and direct link is created between the two parties involved in the transaction. This makes transactions cheaper, makes international transactions smooth, and makes transactions happen faster.
Why did Nigeria create the eNaira?
One reason for creating is that many other countries were thinking about making their CBDCs too.
In 2021, a study by the Bank of International Settlements (BIS) found that 90% of the world’s central banks were considering creating CBDCs.
CBDCs can also have some benefits for a country’s financial system.
The eNaira has some goals:
- Help more people access financial services
- Make payments work better
- Improve how the government collects taxes and revenue
- Allow the government to send money directly to citizens
How does the eNaira work?
The eNaira works kind of like bitcoin. People can use a digital system called blockchain to send eNaira to each other directly, without needing any middlemen.
How is eNaira different from Bitcoin?
Even though both use blockchain, they work in different ways.
Bitcoin is like money that isn’t controlled by any one person. It uses a system that anyone can look at to see all the transactions (like a public record).
But the eNaira is controlled by the central bank and uses a different type of blockchain that isn’t public.
This makes it so you can’t easily see all the eNaira transactions like you can with Bitcoin.
Also, with Bitcoin, anyone with internet access can quickly create a digital wallet and start making transactions. But for the eNaira, the central bank controls who can make transactions and when.
Why does the eNaira use a different type of blockchain?
The eNaira uses a special kind of blockchain because the central bank wants to control who can use it, how they can use it, and how new eNaira is created.
This is why they use a system called Hyperledger Fabric, which lets private groups create their own blockchain.
How much is the eNaira worth?
One eNaira is worth the same as one naira. So, they have the same value.
The central bank keeps the value of the eNaira the same as the regular naira by making sure there’s enough regular naira saved up to back up the eNaira.
The eNaira is set up in a way where the central bank is in charge of the main record-keeping system.
Other financial organizations in the country can use this system to create their own tools and features for this new e-currency.
Banks play a role in giving people access to this new CBDC.
They help make it easier for people to use eNaira for different types of payments.
Wrapping It Up
Using eNaira is easy and there are instructions here to set up your account.
The eNaira is at the forefront of CBDCs, leading the way for other digital currencies.
Although its widespread adoption is yet to happen, it holds promising prospects for the financial well-being of many Nigerians in the future.