- August 5, 2021
- Posted by: Admin
- Category: Uncategorized
Does technological change respect economies and individuals? The simple answer is no. When technological change takes place it disrupts economies and individuals that refuse to act fast.
It is very interesting that the Central bank of Nigeria is taking a very good step to launch a stable coin called the eNaira. This project was least expected as the reserve bank banned Crypto transactions early in 2021.
The potential of blockchain is great and it has the potency to disrupt the financial and monetary system. As Bitcoin will become the native currency of the internet, what will become of the national fiat currencies?
While the central bank has taken good step to develop a central bank digital currency, the eNaira which will be a digital version of the fiat naira. I believe the difference is that paper naira is physical cash while eNaira is a digital cash.
But, what are the benefits this new currency innovation has? How will the economy be improved via this innovation.
It is reported by CBN that 80 countries are already experimenting with the central bank digital currency, China is one of the nations that has started using it.
In this article I will explain the 3 ways the eNaira will boost the economy. Here they are;
The 3 Ways the eNaira will improve the economy
Low Transaction Cost
One of the functions of a legal tender is transaction functions. There is always a cost associated with transactions with the fiat currency.
The cost is as a result of the intermediaries that the cash needs to pass through before getting to the destination. This transaction cost can be very high, leading to a reduction in the nominal value of the money.
With eNaira, transactions can be done on Peer to Peer (P2P) basis, this will help participants to avoid high cost. The interesting thing is that money saved is money made.
So, businesses making payment in eNaira will save money, and individuals making payment in eNaira will save money. The ripple effect is that there is an economic gain as the money will be invested into the economy. Here is another interesting benefit;
The CBN cashless policy is one of the best policies that the CBN will make in Nigeria. one of the goals is to reduce the risk of the physical movement of cash by individuals and businesses.
You know what? The digital currency or the eNaira will help to achieve that policy better than an Automated Teller Machine (ATM).
With your e-wallet in your smartphone, sending and receiving cash becomes as easy as chatting on WhatsApp. eNaira will make individuals, banks and businesses to be more cashless than ever, this will reduce risk and the cost of cash management.
However, those in other countries will be interested in the third potential of eNaira.
- Remittance Efficiency
Cross border payment or payment coming to Nigeria from other countries have one problem. The problem is the high cost of sending the money into the country.
Intermediaries helping to process these funds coming into the economies charge fees to render the services.
It is reported that the remittance cost is about 10%. This means that any money that is being sent to Nigeria will be reduced by 10%.
With eNaira there will be no need to send through third parties. There will be efficiency in cross border payments. It will be convenient, cheap and faster to send cash to your loved ones using the eNaira P2P system.
It is indeed a fact that technological progress brings real progress to an economy. With these benefits, the economy’s performance and efficiency will be improved. However, the question to ask is does the eNaira help to curtail inflation in Nigeria?
How is Bitcoin as a legal tender makes El Salvador different from Nigeria eNaira. Read the article here.