THE FUTURE OF e-NAIRA IN THE NEW ERA OF MONEY:A CASE STUDY OF NIGERIA’S FINANCIAL SYSTEM
By Eugene Goldman
Money as we know it, is no longer what it used to be. The digital money revolution is killing money. What is the future of money in general? The world is undergoing an evolution in its monetary systems. As the saying goes, ‘’Change is the only constant factor in life.’’
When Finland kick-started the Avant Smart Card payment system in the 90s, little did we realize that it was going to transform into a digital revolution called CBDC (Central Bank’s Digital Currency). The invention of the BLOCKCHAIN technology has destroyed the foundations of our financial instructions. In principle, the INTERNET is a technology where information is shared among people globally, and the BLOCKCHAIN in contrast is a technology where ledgers are shared or distributed across computer systems globally.
Money is the economic energy of man and can be transacted from one person to another using any form of instrument that is mutually accepted, limited in supply, fungible, durable, and divisible. The world financial system has moved from tally sticks, to teeth of sharks, precious stones, cowries, paper money, and coins,but now as digits stored in a computer system. One of the major challenges with these monetary systems is that some of them are not backed by real value systems. The difference between money and currencies is that money is anything that contains value and can hold value for over 15years on average without losing its market capitalization and acceptability.
The world has experienced four mainstream financial systems, but the fractional reserve banking system which is run by the FIAT currency policy system or the Dollar system in layman terms is the most volatile in all the financial systems the world has ever experienced, starting from the financial intermediation theorem, to the credit creation theorem, and the current world fractional reserve banking theorem. And now in the era of CBDCs and crytoptocurrencies, we have the currency management banking theorem. The advent of digital currencies and cryptocurrencies is killing the world monetary systems as we know it. The CBDC though regulated by apex banks of nations still operate on the same blockchain technology as cryptos.
The reason why the gold standard of money is far better than the FIAT currency standard is because the FIAT currency is the legal tender of the United States. By it, all nations transact monetary exchanges at the mercy of the US currency. Secondly, the FIAT currency does not have any universal token upon which its value is determined. Therefore, the FIAT currency simply infers that all nations are buying IOUs from the USA through her Dollar bill. That is why it is wrong to store your national assets and reserves in Dollars; but on commodity money within your nation, and offshore. The danger ahead in the adoption of cryptocurrencies is that it operates on the fractional reserve banking theorem which is piloted by the FIAT currency monetary system.
It is sacrosanct to state here that CBDCs (like the eNaira) is just a brooding for the global financial system ushered in through the blockchain technology. There are no basic differences between the CBDC and Cryptos, other than the fact that the primary currency for trading CBDCs are local currencies against the FIAT currency. On the CBDC blockchain issuing of fresh currencies is handled by the CBN, but conversion of local currencies into its digital form is done through the commercial banks.
The demographic is that the stages of the current world financial revolution is that in the first phase, citizens of the world have to be gradually introduced to the use of cryptocurrencies starting with the use of CBDCs. This may be unknown to the central banks, but that’s the truth. It is reduced to the fact that if people adopt the digital currencies (CBDCs), they will also accept the one world currency when it is finally introduced.
The benefits of using the digital version of the naira is that it is cheaper, and more convenient for transactions. Also, considering the fact that it can be used for remittances in global money transfer from other nations through interbank exchanges using local CBDC portals.
The implication of adopting this new trend is that as people start adopting the CBDC it will also spur interest in the crypto space and make people consider trading on cryptos for the interest they get in buying and selling cryptos and holding it as stock.
The ban on crypto trading in Nigeria only stopped banks from participating in the new bubble of world financial markets, but people have not stopped trading cryptocurrencies on peer-to-peer networks. The gains that crypto traders get makes the digital currency market more attractive to Nigerians and as people trade these currencies on peer-to-peer platforms, we are gradually shipping our money to other nations where the cryptocurrencies are not banned through Dollar exchanges. If we don’t put checks and balances, in no distant time, cryptocurrencies will destroy our local currency and usher in the global era in monetary exchange.
Crytocurrency transactions that go on via peer-to-peer networks from Nigerians to offshore accounts is over 85% of the total transactions that go on peer-to-peer platforms, as such we are losing our economic fortunes through capital flight to destination countries where the beneficiary accounts are domiciled. The amount of remittances we will start getting through our CBDC or eNaira cannot match the amount of capital flight our economy will suffer as our people trade on cryptos through the peer-to-peer platforms.
We should accept the blockchain revolution and put in place the right interbank settlement policies for its transactions to encourage local trading in cryptos and the eNaira in order to check capital flight out of the country. Since the CBN banned Nigerian banks from trading on cryptos and accepting crypto based transactions, it stifled the Nigerian financial markets of foreign exchange by statistics. Before the CBN ban, Nigeria became the second largest market of cryptocurrency transactions in the world and local users prospered. Since cryptos are a very easy way of earning foreign exchange, banning it will not do us any good but will rather encourage capital flight and reduce our market share in the new era of money.
Our CBDC (the eNaira) would help facilitate financial inclusion in Nigeria, but it can only be used to sell securities locally, not on the international market. In the agricultural sector for instance, where we need foreign direct investments so that we can checkmate food shortages in Nigeria and Africa, we have to create a friendly business environment for agriprenuers to thrive, as they get funds coming from their partners overseas. An example of a well-structured agro-tech company that can offer opportunity for investment in Nigeria is Flora and Fauna Joint Ventures Ltd. Such initiatives as they have should be encouraged because of its potential to bring in foreign direct investments. This would boost our GNI and encourage growth on the grassroots level.
