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Thursday, December 2, 2021

Nigerians are cautious about Africa’s first digital currency

Thousands of Nigerians have opened digital wallets to hold eNaira, Africa’s first digital currency, but skeptics warn that widespread distrust of the government may affect its adoption.

With the launch of eNaira on October 25, Africa’s most populous country became the latest country to launch a digital currency, surpassing many other central banks in the world. France, China and Germany are all testing electronic money. Six Caribbean countries have launched digital currencies.

As a sign of the acceleration of the development of official digital currencies, the G7 advanced economy group formulated guidelines last month to ensure that currencies “support and do not harm” the traditional currency and financial system.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank, said that after the pandemic, central banks are responding to the “necessity of adopting digital payment channels” and are seeking to “maintain their dominant position.” The process did not see unregulated digital currency alternatives gaining greater appeal.”

A senior official of the Central Bank of Nigeria stated that in the first half week of the currency-nearly 400,000 new wallets were registered in dozens of countries and 12,500 transactions were made by customers, valued at 46.3 million naira ($113,000). β€”β€”It is a “great success”. Although customers complained about the cumbersome registration process.

Analysts question whether the digital version of Naira-based on blockchain technology, but not cryptocurrency-can achieve the central bank’s goal: reduce transaction costs, promote cross-border flows, including inward remittances, and allow more people to enter the financial system , And allow more targeted social and welfare expenditures.

“The problem is that using the existing financial payment system can already adequately solve all these problems,” said Songhai Advisory analyst Adedayo Ademuwagun. “Nigeria is the fintech capital of Africa, so there are many options, many ways to pay someone, and it has been paid quickly.”

When eNaira was officially launched last month, Nigerian President Muhammadu Buhari stated that it could increase Nigeria’s GDP ($432 billion last year) by US$29 billion in the next 10 years.

Ronak Gadhia, an analyst at EFG-Hermes, an investment bank focused on emerging markets, said low-cost transactions could make eNaira “very important and disruptive.” .. But there are some uncertainties in its scope of use”. More than Half of Nigerians Due to the lack of formal bank accounts, the informal economy accounts for more than half of GDP, and 95% of transactions are still conducted in cash.

“The government actually knows every transaction you make [with a digital currency] In places like Nigeria, there is some mistrust between ordinary Nigerians and the government and may be skeptical about adoption,” he said.

He pointed out how the central bank froze the accounts of people who participated in the #EndSARS anti-police brutality protest that swept Nigeria last year. “If the government wants to close someone’s account, eNaira will actually make things easier… or even the entire system,” he added.

eNaira was launched nine months after the central bank effectively banned cryptocurrencies (including Bitcoin used to fund the #EndSARS protest) on the grounds that they endanger the financial system and can be used to finance terrorism. Nigeria has quickly become one of the largest cryptocurrency markets in Africa, and citizens use it to circumvent capital controls, generate income in the face of rampant unemployment, and hedge against the depreciating naira.

In the emerging Lagos fintech sector, the decision to effectively ban encryption has been condemned by many people, which has attracted billions of dollars in venture capital in recent years.

Nigerian technology investor Victor Asemota echoed the views of others, stating that he “knows nothing about the problems eNaira aims to solve” in a statement Posted on Twitter last weekHe believes that the mobile money products provided by some Nigerian financial technology companies have simplified the payment process and reduced transaction costs.

Gadhia agreed, but warned that it is too early to underestimate the potential of eNaira. “In terms of the scale Nigeria offers, it seems to be very low, but I would not say that this is totally disappointing or surprising,” he said. “It looks mild at this stage, but I think it’s too early.”

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