Reflections On E-Naira – Aminu J Abdullah

The 2008 global financial crisis was largely blamed on the radical optimism of new classical economists whose prescriptions allowed for the stupendous-albeit-spontaneous investment in the stock exchange and financial markets, which consequently granted unaccounted freedom for bankers’ hubris. Except for Nouriel Roubini and Robert Shiller, it has been argued that most economists did not foresee the oncoming burst. Nevertheless, when it occurred, the world came together in search of a viable solution, which government intervention centred around bailing out bankrupt banks.

According to the Greek economist Yanis Varoufakis, the policy only fuelled further the irresponsibility of the bankers. Instead of using the bailouts to issue loans that’ll get the economy going, they decided to recover the assets they lost to the unfortunate crisis. Moreover, the move triggered the intellectuals into profiling the new order as an era of an economic game being played by greedy bankers and a government that’s ever ready to play into their hands.

The first-ever digital currency was introduced by the anonymous Satoshi Nakamoto, who aims to create a financial system that can’t come under the influence of government or the corruption and lack of transparency of deposit money banks. This will be possible upon its acceptance as the medium of exchange whose supply and demand is purely determined by the equilibrium of the market forces.

However, the idea has been viewed by economists like Roubini and Varoufakis as futuristic technological fantasy rather than any revolutionary economic idea – mainly because cryptocurrency doesn’t have any features of money. Also, economists have projected that the limited supply of cryptocurrency due to the technical demands of mining will risk inescapable deflation. In the same way, hyperinflation will inevitably break out if the supply becomes unlimited when the mining becomes easier. For one reason, there is no central regulator.

The decentralised feature of the digital currency also warrants untraceable remittances that bypass the watch of the market regulation, which despite making countless transactions easier, paves the way for entrenching money laundering. Such presents a challenge to the central banks of major global economies, especially those bedevilled with illicit financial flows, political instability, corruption and terrorism like Nigeria.

The e-Naira has been described by the CBN Governor, Mr Godwin Emiefele as: “A digital currency that provides a unique form of money denominated in Naira. e-Naira serves as both a medium of exchange and a store of value, offering better payment prospects in retail transactions when compared to cash payments. It has an operational structure that is both remarkable and nothing like other forms of central bank money.”

So unlike other digital currencies, the CBN further explained that the e-Naira is traceable because there are components of due diligence in hindering any prospects of fraudulent and illicit activities like money laundering and illicit financial flows.

To consider is the high technical demand of cyber-security to overcome cyber-criminals, who have proven capable of bypassing even the most equipped security systems in high-tech countries. Otherwise, the new system would make it easier for criminals to exploit the system for criminality.

Digital currency is nothing like the traditional money system. It is fiat. Therefore, everything is swift, flexible and outwitting. There is no room for inconsistency or any avoidable incidence. Otherwise, all hell would break loose.

Reuters reports that in 2018, one billion dollars was laundered through digital currency. And in 2019, the amount increased to 2.8 billion dollars even though it will be a fair argument that such happens because no centralised regulator can trace the Wallets.

Another relevant concern is the epidemic of scamming. The Nigerian economy is riddled with unpatriotic fake news entrepreneurs that it reaches the point where even the educated and enlightened can be victimised by fake news. A significant population of people holding digital currencies would mean an opportunity for scammers to exploit their nervous inexperience and ignorance to bankrupt them. A similar disaster took place barely two years after Bitcoin was introduced. An elusive fear of scamming was created in the mind of the massive American population, which was an opportunity the scammers got to appear as trustworthy keepers of their assets only to run away with all of it.

Concerning the technicalities of the e-Naira, Nigeria appears as an even more vulnerable target. The CBN must ensure proper education among e-Naira users. Otherwise, it will have to spend massive resources bailing out the victims of scams. Also, the insurance of ‘depositors’ is not clear.

From the information that surfaced, it has not been made very clear how the currency would be supplied, which would be a phenomenon of critical relevance, having learnt from the CBN that the objective of the currency is to be accepted by everyone. The aim of digital currency since its inception in 2008 has been to replace paper money. Therefore, if the supply is limited, the acceptance of the currency may give rise to a problem along the axis of deflation. And if it is unlimited, the regulation of CBN will help in correcting the inconsistencies. But that will mean defeating the purpose of decentralisation.

Moreover, the distinguishing feature of the e-Naira as a simultaneous medium of exchange and store of value brings more challenges than the non-conversant eye can see. The paradox here is that any commodity that stores value is subjected to appreciation and depreciation. In the event in which the economic agents expect depreciation, they will be rational as to become unwilling to hold it in order to rescue their investment. Likewise, their rational willingness to hold it when they expect it to appreciate. And that will threaten its stable flow as a medium of exchange.

In a possible scenario in which the e-Naira is expected to appreciate from N200 to N360 within three months no rational agent holding a range of hundred to a thousand will forgo knowing it will add N16,000 to N160,000 on his initial investment in just three months.

Moreover, suppose it is required that he uses the e-Naira as a legal tender to purchase daily goods and services in that case, a rare culture of thrift may break out that will see people preferring to hold their money rather than consume in anticipation of profit. This will cause a fall in consumption, a menace of cunning debt, and collective abstinence that may trigger the paradox of thrift and fallacy of composition. Likewise, in the event in which the people anticipate a fall in its value they will scramble to let it go, threatening the stability of its value at unreasonable proportion.

That being said, despite the open-ended prospects for modification and corrections, a digital currency that combines storing value and serving as a medium of exchange presents solutions for the future.

About the Author: Abdullahi works with the Centre for Fiscal Transparency and Integrity Watch, he can be reached at:

Source: Daily Trust

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