The eNaira, which has a two-tiered CBDC architecture or a hybrid model, is the only African CBDC in circulation currently. Still, it functions largely as a retail CBDC, with the CBN not only the issuer of the digital currency but also the manager of the eNaira wallet, thus limiting the role of financial institutions to the handling and processing of retail payments.
While financial institutions are also charged with distribution of the eNaira, their role is almost literally ceremonial, as a chunk of the transaction process takes place in the eNaira app, which is controlled and managed by the CBN.
In other words, the CBN is not only the issuer of the digital currency but also effectively the banker of eNaira users. Unsurprisingly, the eNaira is not enjoying much custom. About a third of the over 200,000 eNaira wallets that the CBN has set up thus far were inactive in late May 2022, according to report available to the media, only 80 merchants and about 18,000 individuals funding their wallets.
To achieve its financial inclusion objective, a CBDC must operate as seamlessly as possible in areas with limited or no internet infrastructure as it would in more ideal digital circumstances
Customers still prefer to use the mobile phone apps of their banks for electronic transactions. As the eNaira is as yet not equipped for cross-border payments, being as destination countries must have CBDCs too, users have not been able to use it for remittances either. Even so, the eNaira will have a better chance at success if financial institutions are the front-end that customers interact with, like they do with cash.
A pilot launch of the Ghanaian eCedi is already underway. Quite instructively, the eCedi avoids some of the design bottlenecks of the eNaira, as it simply mimics cash, with all the stakeholders in the financial system maintaining their roles.
That is, the Bank of Ghana (BoG) will perform the same regulatory functions with the eCedi as it does with the cedi. The financial intermediation role of banks with the eCedi will not be altered in any material way either, as envisaged in the design paper of the digital cedi, at least.
Whereas the CBN hosts the eNaira wallet, the eCedi wallet will be hosted online by financial institutions via a smartphone app, payment card or feature phone, with users also able to hold the eCedi offline in a smartcard, key fob, smart watch or wristband.
The offline eCedi is the version being tested in the pilot launch, which commenced in late May 2022. To achieve its financial inclusion objective, a CBDC must operate as seamlessly as possible in areas with limited or no internet infrastructure as it would in more ideal digital circumstances.
By starting with an offline eCedi, the prospect of wider adoption of the online eCedi when it is launched is high, as the evolution mimics cash. The eCedi looks set to be an instant success, with other African central banks, including the CBN, likely to take a cue from the BoG’s diligence.
