The Nigerian central bank digital currency (CBDC), the eNaira, is one year old, and the International Monetary Fund (IMF) has given it a belated birthday present: a working paper assessing its first year of operation. “Commendable,” say the IMF researchers, but there are also some suggestions.
The eNaira was the second CBDC in the world, launched in October 2021, after the Bahamas Sand Dollar. The paper found that its retail side was brokered, but had no latency issues as it has yet to break through to early adopters. The Central Bank of Nigeria (CBN) phased in, deferring two of CBDCs’ biggest goals: expanding financial inclusion to the unbanked and facilitating remittances, IMF officials have determined.
Only 1.5% of the wallets are active each week, and in the period examined, 802,000 transactions were made. The numbers represent less than one per wallet and less than 1% of the country’s bank accounts have wallets. The document observed:
“Like any network product with similar features (for example, the credit card), breaking the initial equilibrium of low adoption requires a mix of smart strategies and luck.”
Mobile money operators (MMOs) have a large network in Nigeria, and eNaira’s relationship with that network is a key issue mentioned in the paper. CBDCs could compete with MMOs in the retail market or facilitate MMO operations by bridging them. The document calls it “difficult to imagine” that eNaira will replace all MMO services, but also notes that a bridging function could trigger a difficult “restructuring of the industry.”
CoinW Africa Today#Nigeria was the second country after Bahamas to roll out a CBDC. Following Nigeria’s October introduction of e-Naira, #SouthAfrica and #Ghana are running pilots while other countries are in research phase, the IMF said in its digital money and fintech blog. pic.twitter.com/WJF5hILn97
— CoinW Africa official (@CoinW_Africa) June 27, 2022
As a single currency system, the IMF says that eNaira cannot accommodate remittances directly, but mentioned that it could be overcome by allowing international money transfer operators (IMTOs) to receive eNaira wallets or through intermediation. The researchers recommend the former. Although both options will remain expensive, which the IMF considers a serious problem in light of the parallel and clandestine market that serves the same purpose.
The document recommends some measures to boost the use of eNaira, such as using it for social payments together with MMOs that improve the social cash transfer system and increase its adoption. Traders could also be incentivized to use eNaira. The CBN has started working on inclusion through eNaira, the document notes, but remittances remain problematic.
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