After Nigeria’s eNaira Disaster, Another “Live” Central Bank Digital Currency, Jamaica’s Jam-Dex, Founders

Just three countries have so far introduced CBDCs, according to the IMF, and two of them are already having serious issues. 

The roll-out of central bank digital currencies (CBDCs), while still in its early stages, is not going as smoothly as the central banking community may have hoped. The latest central bank to admit to serious difficulties is the Bank of Jamaica (BOJ) whose governor Richard Byles has acknowledged that the rollout of the country’s CBDC, the Jam-Dex, has been a lot slower than originally anticipated. In fact, the total amount of Jam-Dex in circulation has remained stuck at just 230 million Jamaican dollars (USD 1.47 million) since the first — and so far only — batch of the digital currency was “minted” 19 months ago.

The Jam-Dex is one of just three fully-launched retail CBDCs in the world, according to the IMF, alongside the Bahamian sand dollar and Nigeria’s eNaira.

“Being one of the first in the world has its unique challenges,” Byles said at the BOJ’s quarterly monetary policy report press conference last Wednesday. “What we are finding in the roll-out is that as we address an issue and move ahead, another one pops up. I guess that’s what you get for being amongst the first; you don’t have a road map set out by others, but we are determined.”

Jamaica’s “Rapid” Transition Toward a “Fully Digital Society”

Contrast this message with the much more confident tone struck by Jamaica’s Prime Minister Andrew Holness in a speech on Jamaica’s “rapid” transition toward a “fully digital society” last July:

In the coming weeks and days I’ll be making certain announcements regarding the acceleration of Jamaica’s intention to become a fully digital society. We are well on our way to this. We have established the national identification system, we have put in place our digital currency, we have given directions to our ministries to digitalise their operations. Most of our ministries are now moving from paper-based systems to digital systems. Our military is transitioning. Society is moving very quickly to become digital.

Our banking consumers are seeing it as well because the banks are moving very rapidly to digital. You have something now called artificial intelligence. Very soon this position of a human being exchanging cash, that is going to soon disappear from the banking system very soon and you are going to have to interface with machines. I don’t want it to be scary but it is a thought that we all have to embrace.

Many Jamaicans, it seems, are not ready to do that. Shortly after making his speech, Holness had to row back his comments following a public backlash over the idea of cash being removed from the system, as happened in Nigeria just over a year ago (more on that later). Holness labelled any suggestions as “irrational” and the result of widespread disinformation, arguing that the government has just invested billions of Jamaican dollars in upgrading Jamaica’s cash notes. Which seems like a fair point — until you hear what the central bank governor just said:

“When you look at all of the cash problems and complaints, fundamentally, digitising is the only solution. All those issues go away with digital transactions, credit cards, debit cards, wallets, CBDC, that’s what we want in this country. The use of cash is really quite high and creates problems that are intractable.

According to a report on Jamaica Live News, most Jamaicans do not want a central bank digital currency anyway:

“The majority of the Jamaican public argue that do not agree to a digital currency and feel they are been bamboozled into it. Most Jamaicans use cash on a daily basis and many do not have a bank account. The consensus amongst Jamaicans, are, crime is a bigger and more urgent problem and they do not understand why the government is making the digital currency a priority.”

Also, Holness’ claim that banks are rushing to embrace the CDBC is plain wrong. As Jamaican Observer reports, just one national lender, National Commercial Bank of Jamaica (NCB), has so far agreed to participate in the BOJ’s pilot test of digital currency through its NCB. It is the only bank currently able to facilitate Jam-Dex transactions. That’s after 19 months of Jam-Dex operations:

JN Bank was expected to follow suit shortly after but is yet to launch its own
JN Pay digital wallet.

Two other banks, JMMB Bank and First Global Bank also stated their intention to incorporate CBDC-related services in their businesses but have not stated a timeline for roll-out.

“The take-up is still lower than what we desire at this time. The main reason is merchant adoption. Most of the larger merchants would prefer if Jam-Dex payments go through a single point-of-sale machine, so what we are doing is testing a solution in the sandbox for the use of a dynamic QR code.

“It’s really about the customer experience, they don’t want another device, they want the same machine that takes the debit and credit card,” deputy governor, banking, currency operations and payment system at the BOJ, Natalie Haynes, said…

In the meantime, she said that two more banks are expected to join NCB in the acceptance of Jam-Dex transactions by the middle of this year.

At last count, the NCB platform was said to have over 200,000 ‘Lynkies’, or users, who can conduct peer-to-peer transfers and digital payments at over 4,000 micro merchants, predominantly in the food and beverage, fashion, and consumer goods categories.

This is barely an improvement on figures cited by a Financial Times article from July 2023, according to which the total number of Jam-Dex customers as of February 2023 — over a year ago — was 190,000. Total transactions for 2022 were valued at $357mn, “less than 0.01 per cent of Jamaica’s $4.7tn electronic retail transactions for that year and 0.1 per cent of currency in circulation.” As the article notes, total transactions would have been higher if the service had been available throughout 2022, but it is still “a drop in the Caribbean sea.”

In a bid to boost take-up, the finance ministry announced two incentive programmes — the “Small/Micro Merchant Incentive Program”, which proposed to reward 10,000 food stores, gas stations and salons with a J$25,000 ($164) deposit, and the “Wallet-holder Individual Loyalty Program”, which provides regular users with loyalty points that can be redeemed for cashback — but to little apparent avail.

Lessons from Nigeria

A similar story has already played out in Nigeria, Africa’s largest economy and most populous nation. Launched in October to great fanfare, Nigeria’s eNaira also had minimal impact on the country’s economy and citizens. Like the Jam-Dex, the eNaira is account based, not token-based. In Nigeria, as in Jamaica, banks had little interest in promoting the new currency while most Nigerians had no interest and/or no means of using the CBDC. Within nine months of its launch, around 700,000 people had downloaded an eNaira wallet — a thoroughly underwhelming number in a country with an estimated population of 225 million people.

That number has crept up since then but only as a result of drastic measures taken by the CBN that have had a devastating impact on the country’s economy. In October 2022, a year after the eNaira’s launch, the CBN announced a redesign policy for the naira, citing a whole host of reasons. Chief among them was the desire, ultimately, to do away with cash. The CBN Governor and chief architect of the eNaira Godfrey Efemiele, said: “The destination, as far as I am concerned, is to achieve a 100 percent cashless economy in Nigeria”.

The central bank said it would begin issuing redesigned high-value notes from mid-December and gave residents until the end of January to turn in their old notes. The problems began in earnest shortly thereafter. In a matter of weeks the CBN withdrew high-denomination notes from circulation while failing to replace them with the newly designed notes it had promised, triggering a cash crunch as the money supply in circulation decreased faster than its demand.

By March 2023, Nigerian citizens had returned a little over 1.3 trillion naira — just over 40% of the 3.2 trillion naira in circulation — of old notes to financial institutions while the CBN had minted only 3-billion-naira worth of eNaira, accounting for only 0.09 percent of the total cash supply. The CBN also placed stringent limits on the daily cash withdrawals of anyone who could access cash. Many couldn’t. The result was unmitigated chaos and economic pain.

Nigeria’s GDP plunged by a record 15% in the first quarter of that year while its currency crisis deteriorated, pushing inflation higher. In March, the central bank finally paused the cash swap program until the end of the year, but only at the dogged insistence of Nigeria’s Supreme Court. By then the lives, jobs and businesses of untold numbers of people had been upended. Yet the overwhelming majority of people still clung to cash or used some form of barter currency. As I reported in June, they had no possible means of using digital payment methods anyway since most people do not own a smart phone or have regular access to the Internet:

Of Nigeria’s approximate population of 220 million, between 25 million and 40 million people actually have a smart phone [though that number is expected to grow rapidly in the coming years]. More than half of the population is unbanked.

In other words, the overwhelming majority of Nigerians had no possible means of using digital payment methods even if they had wanted to. As more than half of the cash was drained from the economy, they had no means of transacting. Many of them took to the streets to protest. Banks were vandalised; some were even burnt to the ground. At the height of the protests, in mid-February, a coalition of civil society groups demanded that the CBN issue the new notes and end the suffering of millions of Nigerians — a demand that was rejected by the central bank and the Buhari government.

Amidst all this chaos, the number of e-Naira wallets reportedly increased more than 12-fold to 13 million, as millions of middle and upper-class Nigerians began downloading them. But are they actually using them?

Most of the people who downloaded the eNaira app in its first year of operations did not bother to use it. In a May 2023 working paper, the International Monetary Fund (IMF) — which played a key role in the CBDC’s development and roll-out — described the Nigerian public’s adoption and usage of the CBDC in the first year as “disappointingly low,” with fewer than 2% of the downloaded eNaira wallets actually being used:

The average number of eNaira transactions since its inception amounts to about 14,000 per
week—only 1.5 percent of the number of wallets out there. This means that 98.5 percent of wallets, for any given week, have not been used even once. The average value of eNaira transaction[s] has been 923 million naira per week—0.0018 percent of the average amount of M3 during this period. The average value per one transaction has been 60,000 naira.

Today, the future of the eNaira is clouded in uncertainty. Just over a year ago, rumours began flying that the CBN was looking for help to redesign and relaunch the digital currency. The CBDC may have been a total flop so far but the IMF, which helped design the system, still sees room for potential, especially now that the CBN is apparently moving to the second phase of the eNaira’s incremental roll-out: expanding its coverage to (1) people without bank accounts (but with mobile phones) and (2) those without internet access, largely by offering eNaira to the country’s legions of poor through social cash transfer programs.

The future is less bright for the CBN’s former governor, Godwin Emefiele, who worked alongside the IMF in launching the CBDC. After spending June to November in jail, he was released on bail. But he faces a long (and growing) list of charges including fraud and embezzlement. His replacement at the central bank’s helm, Olayemi Cardoso, is reportedly considering dropping his predecessor’s eNaira programme and the naira redesign policy. The new Tinubu government is also apparently considering granting a consortium of banks, fintechs and blockchain firms a license to launch a naira-based stable coin.

From Business Day:

The CBN under the current governor, Olayemi Cardoso, has yet to announce the retirement of the eNaira but experts who believe there is no future for the central bank digital currency, say the eNaira will be eased out of the system and its place taken by the cNGN.

The promoters of cNGN including Access Bank, Providus Bank, Sterling Bank, First Bank, and a few fintech companies, are keen to not associate the stablecoin with the eNaira, launched by the Godwin Emefiele-led CBN. But try as they may, the ghost of the eNaira would not be that easy to shake off, according to experts.

Another problem is that the naira, even by its usual standards, is anything but stable right now, having crumbled from 460 to a dollar in February last year to 1,540 today. Much of that collapse was due to the Tunubu government’s disastrous decision to remove the country’s fuel subsidy while also lifting the dollar peg. In a desperate bid to regain control of the naira, the government has suspended crypto exchanges like Binance, Coinbase, and Kraken from trading. It has also closed thousands of bureaux de change.

Nonetheless, the fact that the currency of the world’s first major economy to try to launch a CBDC is now hanging by a thread hardly serves as a ringing endorsement for central bank digital currencies.

Central bankers in more advanced economies will presumably try to draw lessons from the eNaira’s failures and the Jam-Dex’s ongoing difficulties. As the IMF noted in a November 2021 report, the roll out of the eNaira was being closely watched by the outside world — including by other central banks. But the mere fact that two out of the first three CBDCs have had such an underwhelming impact so far while the chief architect of the eNaira is facing a litany of criminal charges may have a chilling effect in emerging economies, particularly in Africa.