A recently released report has raised concerns about Nigeria’s central bank digital currency (CBDC), eNaira, citing potential risks to financial stability, despite its success in narrowing the country’s financial inclusion gap. eNaira, which was launched nearly two years ago under former Central Bank of Nigeria governor Godwin Emefiele, is approaching its second anniversary in October.
The Central Bank of Nigeria (CBN) had championed eNaira as a means to enhance financial inclusion and expand the size of banks’ deposit base. However, the report titled “Economics of Digital Currency,” obtained by Findwhosabi, warns of stability risks stemming from the conversion of bank deposits into eNaira.
According to the report, the conversion of bank deposits into eNaira has exhibited significant growth since its inception, with an average monthly growth rate of 78.3 percent, totaling approximately N1.66 billion ($2.1 million). eNaira in circulation as a ratio of average banking system liquidity has also seen growth, reaching highs of 0.2 percent in May and August 2022.
The report identifies an issue whereby funds converted into eNaira are held within wallets domiciled with the CBN, making them unavailable for lending activities by commercial banks. This impact on banks’ ability to lend has raised concerns within the financial sector.
The report also notes that eNaira’s adoption rate among individual users has been slow, resulting in a low number of active consumer wallets, totaling 10,420. While this number has improved compared to previous months, with 187,190 wallets activated as of July 2022, challenges remain that hinder broader adoption.
Furthermore, the report highlights the potential negative impact of eNaira on banks’ profitability through reduced non-interest income. It also raises concerns about increased cyberattack risks associated with the use of the CBDC.
The findings of this report shed light on the complex challenges and considerations associated with the implementation of a digital currency, even when aimed at improving financial inclusion and modernizing the financial sector.