In October 2021, Nigeria became the third country globally to launch a central bank digital currency (CBDC)—the eNaira. It came as a shock, given that most other countries are still trying to figure out this new technology and its impacts.
To be fair, though, the idea of moving central bank cash to a digital format is not new. As early as 1987, James Tobin, a professor at Yale, suggested that we create accounts that would sit directly with central banks instead of commercial banks. Note the difference between this digital cash and your current or savings account, which requires a private-sector bank to operate.
There are very few countries across the world that have launched a digital currency. This is because it’s quite difficult to figure out the kind of digital currency that is right for a country’s monetary and fiscal policies.
For Nigeria that hopes to improve tax collection, distribute social welfare etc, using digital currencies provides these benefits and helps the country go cashless faster. However, this means taking away some level of anonymity which most cash users prefer to have.
Essentially, not many people will opt to use the eNaira—Nigeria’s digital currency. But, this is intentional as the alternative design will potentially disrupt the banking system and forever change the business model of banking.
Despite the idea of digital cash being around for a while, nobody took it seriously. Banks were doing their jobs fairly well—why shake what wasn’t broken?
Until…the financial crisis in 2008. Banks made terrible moves that broke the financial system and took the global economy down with it—millions lost their jobs. It was a wake-up call, not just to policymakers but to everyday people. Banks weren’t as safe and diligent as we once thought.
Notably, this crisis happened under the