Artificial Intelligence can amplify some of the benefits of the eNaira and other Central Bank digital currencies, the International Monetary Fund has disclosed.

It stated that those benefits include improving financial inclusion through the provision of rapid, accurate credit scoring based on various data.

According to the Washington-based lender, the benefits of CBDCs will depend on how technologies evolve.

The IMF Managing Director, Kristalina Georgieva, revealed this during her keynote address at Singapore Fintech Festival.

She said, “AI, for instance, could amplify some of the benefits of CBDCs. It could improve financial inclusion by providing rapid, accurate credit scoring based on various data.

“It could provide personalised support to people with low financial literacy. To be sure, we need to protect personal privacy and data security, and avoid embedded biases, so we don’t perpetuate inequality, but aim to reduce it. Managed prudently, AI could help.”

She stated further that the tokenisation of financial assets, such as bonds issued on blockchains will open another door to CBDC, potentially in wholesale form, to pay for these assets.

Georgieva stressed that the benefits of CBDCs would stem from what happens in the payments’ environment, and that would depend on how many other countries adopt CBDCs, and to what extent would cash become obsolete.

She argued that many countries were investigating CBDCs and were developing regulations to guide digital money developments.

However, she noted a lot of work still needed to be done and there was still so much more space for innovation because of the plenty of uncertainty over use-cases for CBDCs.

She declared that the public sector must keep preparing to deploy CBDCs and related payment platforms in the future.

Noting what the success of CBDCs would be hinged on, the IMF MD said, “The success of CBDCs will rely on policy decisions and how the private sector responds. The actions of many of you here today will matter. Country authorities wishing to introduce CBDCs may need to think a little more like entrepreneurs.

“Communication strategies, and incentives for distribution, integration, and adoption, are as important as design considerations.”

She further announced the launch of a CBDC Handbook by the IMF, noting that the handbook was intended to collect and share knowledge on CBDCs for policymakers around the world.

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TECHDIGEST – Nigerian President, Muhammadu Buhari will at the State House in Abuja today formally unveil the Nigerian Central Bank Digital Currency (CBDC), known as the eNaira with the theme “Same Naira, more possibilities”.

In a statement signed by Osita Nwanisobi, Director, Corporate Communications at CBN, after today’s formal launch by the President, the Bank will further engage various stakeholders as Nigeria enters a new age consistent with global financial advancement.

The launch of the eNaira is a culmination of several years of research work by the Central Bank of Nigeria in advancing the boundaries of payments system in order to make financial transactions easier and seamless for every strata of the society.

The launch is coming following series of engagements with relevant stakeholders including the banking community, fintech operators, merchants and indeed, a cross section of Nigerians.

“The eNaira therefore marks a major step forward in the evolution of money and the CBN is committed to ensuring that the eNaira, like the physical Naira, is accessible by everyone. Given that the eNaira is a journey, the unveiling marks the first step in that journey, which will continue with a series of further modifications, capabilities and enhancements to the platforms,” the statement added.

The statement added that CBN will continue to work with relevant partners to ensure a seamless process that will benefit every user, particularly those in the rural areas and the unbanked population. Since the eNaira is a new product, and amongst the first CBDCs in the world, we have put a structure to promptly address any issue that might arise from the pilot implementation of the eNaira.

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TECHDIGEST – The CBN recently sent a presentation to Nigerian banks about the eNaira project, revealing more details about its design and operational module. As seen by Nairametrics, the presentation described how the new currency would be designed and operated.

In fact, the report states that the e-Naira is a legal tender for the entire country. The report also mentions that it will have non-interest-bearing CBDC status, a transaction limit for customers, and a value-based transaction limit.

Participants in the e-Naira program are featured in five stages, including:

Monetary Authority Suite; The Central Bank will be handing the first product component that includes issue, distribute, redeem and destroy the currency. Store data on a cloud server, monitor and analyse currency transactions.
Financial Institution Suite; licensed financial institution will be able to request currency or issue stablecoins, manage digital currency across branches, KYC, identify and AML compliance capability.
eGovernment Suite; the government will b able to efficiently process digital payments sent to and received from citizens and businesses.

Merchants will provide low-cost payment and business management software, POS, remote payment solutions, online capabilities, transaction analysis and reconciliation.

Retail Consumer Suite; features user-centred designs for a great user experience. The architecture will be expandable to enable innovation; features advanced privacy and security.
Consequently, the proposed transaction cost for the e-Naira wallet was also outlined by the Nigerian Central Bank.

The digital currency infrastructure does not charge for user-to-merchant transactions and P2P wallet transactions.
It shall be the responsibility of Nigerian banks to promote and market the centrally issued digital currency as a cash alternative to existing and potential customers in support of the Nigerian apex bank’s goal for financial inclusion.

In order to catalyse the adoption of the e-naira, banks will facilitate onboarding and provide world-class customer service.

Nigerian banks will be allowed to invite all their customers to register for the e-Naira. Besides pre-generated codes, the banks can send invitation codes for onboarding to a specific list of selected customers. Onboarding will be done for customers who have a code assigned by their banks. The banks have already validated and verified these customers.

Moreover, the Central Bank stated the wallet provided by its institution was merely a stop-gap measure for meeting the deadline, given that banks and other licensed operators may provide their own wallets since it didn’t intend to compete against the banks.

As part of the digital currency initiative, Nigeria’s central bank has made clear that NIBSS and other switching platforms will still be relevant, existing infrastructure can be integrated and leveraged in the e-Naira implementation.

As a National Critical Infrastructure, the e-naira system will be subject to comprehensive security checks, all data and personally identifiable information (PII) will be kept off the ledger and will not be stored on the ledger.

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TECHDIGEST – With an October date set for the pilot stage of the e-Naira, Central Bank of Nigeria’s planned digital currency, financial technology specialists have said the date may not be feasible even as they warn the apex bank to be cautious and not rush into it.

CBN director of information technology, Rakiya Mohammed, had at a private webinar mentioned that the pilot stage of the digital currency is expected to kickstart by October, noting that the apex bank had been conducting research sin.ce 2017 with regards to developing a digital currency.

Mohammed, who stated that CBN may conduct a proof of concept before the end of this year, said the project is tagged ‘GIANT’ and will use the Hyperledger Fabric blockchain. The Hyperledger Fabric is an opensource project that acts as a foundation for developing blockchain-based products, solutions and applications using plug-and-play components that are aimed for use within private enterprises.

Hyperledger’s executive director, Brian Behlendorf, said there had been an increase in the use of Hyperledger’s opensource blockchain technology, including Hyperledger Fabric, for Central Bank Digital Currency (CBDC) and other currency projects.

“However, since our technologies are all opensource, we often don’t know all the ways and places Hyperledger software is being used, especially prior to launch,” Behlendorf said in an email.

“If Nigeria’s digital currency project is built on Hyperledger Fabric, that would be welcome news that further validates Fabric as a CBDC platform.”

Rise of digital currencies

The proposed eNaira is a type of Central Bank Digital Currency (CBDC) which over 80 per cent of central banks across the world are currently exploring. CBDCs are new variants of central bank fiat money that are different from physical cash and reserves/settlement accounts.

LEADERSHIP Sunday learned that CBDC is a digital representation of sovereign currency that is issued by a jurisdiction’s monetary authority and a direct liability of the central bank that issued it. Contrary to some beliefs, CBDCs are not meant to replace cash and bank deposits but to coexist as additional form of Central Bank issued money.

CBDCs are also not to be confused with crypto assets such as Bitcoin, Ethereum and the like which are privately issued tokens based on cryptographic techniques and denominated in their own unit of account. Crypto assets are thus fundamentally different from other kinds of digital money such as the CBDC which basically utilizes technology to represent a country’s official currency in digital form.

The Bank of England (BOE) was the pioneer to initiate the CBDC proposal. Following that, central banks of other nations, like People’s Bank of China (PBoC), Bank of Canada (BoC), and central banks of Uruguay, Thailand, Venezuela, Sweden, and Singapore, among others, are looking into the possibility of introducing a central bank-issued digital currency.

Currently, three countries, the Bahamas, Eastern Carribean and China, have begun the use of CBDCs, while Canada, South Africa, Japan, Ecuador, Sweden, Singapore and Hong Kong are already at advanced stage. The United States, Great Britain, Jamaica, United Arab Emirates as well as Mexico are still at the research stage. The role of cash is declining, giving impetus to digital currencies.

Why we need eNaira

Founder/chief executive officer, Gboza Gbosa Technology Ltd, Ade Atobatele, who spoke to LEADERSHIP Sunday on the subject of the planned eNaira, explained that digital currencies are just like cash, only that are digitalised.

Not to be confused with cryptocurrencies, he said “the only thing they have in common is that they are digital CBN’s primary mandate is monitoring interest rates and monetary policies.
“CBDC can be a tool to help CBN’s control of the money supply. The beauty of CBN is that they are a licensing authority which means they can license people for different things. They can call upon them to do their bidding whenever they want,” he said.

Also, founder of Blockchain Mobile Technologies, Stanley Okwu, sees the CBN’s e-Naira as a welcome development. He, however, said such innovation should not be rushed as he called on the apex bank to seek assistance from both local and international experts so as not to run into it unprepared.

While noting that the digital currency would make it easier to transfer remittances into the country, lead to creation of job and allow new ways for digital services in the country, he said “digital currency, like cryptocurrency, is not built in few months.

“It takes a well- organised road map. Therefore, within this timing, CBN should seek out experts, both locally and abroad, to assist them in order to avoid running into trouble. I believe the CBN will get it right if they seek out good hands and experts to work with,” Okwu added.

Likewise, financial technology expert and chief executive of eMaginatons Ltd., Sola Fanawopo, stressed the need for caution. According to him, the apex bank must take a proper stand before it launches eNaira.

“They have to be very careful. However, we must be bold and courageous on what we want to use digital currency for. That decision must be taken and it may be contentious among the financial institutions in the country. I will expect CBN to do wide consultations among the financial institutions, banks, Fintechs, non-banking operators and everybody, including consumers. After wide consultations, CBN can take a decision and the objective can be very clear.

“The October date may not be feasible. China has been on its own for the past five years before it came to the market, so we need to plan very well before taking a decision as this will be better for the country and everybody,” Fanawopo said.

Also, the managing director, New Horizons Systems Nigeria, Tim Akano, told LEADERSHIP Sunday that the CBDC is the way futuristic countries are going; thereby CBN cannot afford to be left behind.

He urged the “CBN to begin its pilot in a certain location such as Ogun State since it has the largest number of industries and universities in the country to test the eNaira before it can be extended to other parts of the country, just like China did with Digital Yuan.”

Note of caution on CBDC

The Clearing House, the bank-owned operator of the only private United States of America payments system, in a statement issued on July 27, 2021, cautioned the Federal Reserves, the US central bank, that a CBDC could destabilise both the domestic and foreign banking and financial services sectors.
Stressing the need to proceed with caution as a CBDC could do more harm than good, the Clearing House, in a report entitled, “On the Road to a U.S. Central Bank Digital Currency: Challenges and Opportunities,” said the “introduction of a U.S. CBDC has the potential to destabilise both the domestic and foreign banking and financial services sectors, and to make illicit activity using the U.S. dollar easier.”
Executive managing director of the Clearing House, Robert Hunter, in an interview quoted by PaymentsDive, noted that while it is not opposed to the idea of a CBDC, it views the real-world possibility of a U.S. CBDC as fraught with questions about its potential purpose, design and risks.

“Particularly in times of stress, it is highly likely that there would be capital flight into a central bank digital currency,” and that could have a destabilising impact on financial institutions, he said.

Meanwhile, the CBN is looking up to the eNaira to help achieve macroeconomic management and growth, cross border trade facilitation, financial inclusion, monetary policy effectiveness, improved payments efficiency, revenue and tax collection, remittances improvement as well as targeted social interventions.
With the African Continental Free Trade Area (AfCFTA), Fanawopo believes the eNaira could become a critical tool in addressing challenges faced in African trade. “We must be specific in the issues we want to use it to address, such as using it to solve the problem that is identified with physical currencies,” he said.

What CBN plans to do with eNaira
CBN director, Rakiyat Mohammed, had noted at the end of the last Bankers’ Committee meeting that the CBDC would be a tool in addressing the financial inclusion challenge of the county.

“Our target for this year was to achieve 80 per cent of financial inclusion and we are at about 60 per cent now and at the rate that we are going we are not likely to meet this target.

“The CBDC will accelerate our ability to meet this target because regardless of where you are just like the fiat cash anyone including my grandmother in the village will be able to have CBDC and use and she will be able to buy anything in Ghana or South Africa or us without having to transfer cash and at a very reduced cost. So, it will reduce the cost of transferring money. In order to complement the federal government’s effort in achieving a digital economy,” she stated.

The model of the eNaira according to the CBN is such that it designs, creates and distributes the CBDC to financial institutions as well as other licensed service providers who in turn provides it to businesses and individuals. The eNaira has the potential to reduce cash handling costs by 5-7 per cent, promote digitisation of cash and development of e-commerce

Benefits of eNaira

Speaking on the benefits of the RakiyaeNaira to the Nigerian economy, Fanawopo noted that asides from strengthening the identity system in the country, a CBDC will help address the issues of cybersecurity, improve literacy level in the country, reduce the cost of transaction, thereby enabling increased confidence in the system.

He further stated that it would challenge financial institutions, including fintechs, to be more creative and innovative. This, according to him, will spur employment among the teeming tech-driven youthful population of the country.

On his part, the financial counsellor and director of the Monetary and Capital Markets Department, IMF, Tobias Adrian, said that central bankers everywhere are closely following the experience in the Bahamas, trying to discern the lessons of the actual issuance of the “Sand Dollar.”

He, however, warned that central banks should design CBDC so that they help support a stable and efficient international monetary system.

“If we design digital currencies with caution and with precision — and if we frame their adoption within legal and regulatory systems that maximise their benefits and minimise their risks — we could be on the verge of an era that fulfils the promise of transformation,” Adrian added.

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TECHDIGEST – Eighty-one countries are exploring central bank digital currencies, according to a new tracker.

The Atlantic Council’s Geoeconomics Center recently unveiled a new central bank digital currency tracker featuring an interactive database.

According to Bitcoin.com, there were only 35 countries in the world set to launch their central bank-backed CBDC in May last year, and five countries have fully launched their own digital currencies.

According to its website, the Geoeconomics Center described itself as “a nonpartisan organisation that galvanises US leadership and engagement in the world, in partnership with allies and partners, to shape solutions to global challenges.”

An original version of the CBDC tracker, launched in April last year, had been used by the US Federal Reserve and the Bank of International Settlements, the centre said.

These 81 countries represent over 90 per cent of the global Gross Domestic Product.

According to the centre, of the countries with the four largest central banks (the US Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England), the United States is furthest behind in developing a state-backed digital currency.

The Federal Reserve Chairman, Jerome Powell, had said in February that the digital dollar was a “very high priority” for the Fed.

However, he had emphasised the need to “get it right,” instead of rushing to launch a digital dollar, particularly to compete with China’s digital yuan.

According to the centre, the five countries that have fully launched a digital currency are the Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada.

The centre added that “14 other countries, including major economies like Sweden and South Korea, are now in the pilot stage with their CBDCs and preparing a possible full launch.”

The Director of the Geoeconomics Center and former senior advisor at the International Monetary Fund, Josh Lipsky, said, “Before COVID, central bank digital currencies were largely a theoretical exercise.

“But with the need to distribute unprecedented monetary and fiscal stimulus around the world, combined with the rise of cryptocurrencies, central banks have quickly realised they cannot let the evolution of money pass them by.”

In Nigeria, the Central Bank of Nigeria has since announced that it is working on a digital currency. As reported recently by The PUNCH, the CBN said it would launch the pilot scheme of its digital currency on October 1, 2021.

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