Nigeria’s eNaira, the country’s central bank digital currency (CBDC), recently celebrated its first year in operation, and the International Monetary Fund (IMF) has released a working paper analyzing its performance during this period. While the IMF researchers commended the eNaira’s debut year, they also provided suggestions for improvement.
IMF suggests improvements to the eNaira
As the second CBDC in the world after the Bahamian Sand Dollar, the eNaira made its debut in October 2021. The IMF paper revealed that the retail side of the eNaira showed no latency issues.
However, its adoption remained limited to initial users, failing to achieve its primary goals of extending financial inclusion to the unbanked population and facilitating remittances, as envisioned by the Central Bank of Nigeria. The paper highlighted that only around 1.5% of eNaira wallets were active weekly, with a total of 802,000 transactions recorded during the observed period.
These figures indicate minimal usage, with less than one transaction per wallet, and less than 1% of bank accounts in the country having eNaira wallets. The paper acknowledged that overcoming the initial low adoption equilibrium would require a combination of clever strategies and luck, much like other network products such as credit cards.
The agency talks about the CBDC’s flaw
A crucial aspect raised in the paper is the eNaira’s relationship with mobile money operators (MMOs) in Nigeria. The CBDC could either compete with MMOs in the retail market or serve as a bridge, facilitating their operations.
The paper described replacing all MMO services with the eNaira as “hard to imagine” but noted that a bridge function could trigger a challenging industry reshuffle. As a single-currency system, the eNaira cannot currently directly accommodate remittances.
However, the paper suggested two potential solutions: allowing international money transfer operators to receive eNaira wallets or utilizing intermediaries. The researchers recommended the former, although both options come with their cost implications.
The IMF identified the parallel underground market serving remittance needs as a significant problem that needs to be addressed. To increase eNaira adoption, the paper proposed several steps, including utilizing the CBDC for social payments in collaboration with MMOs to enhance the social cash transfer system.
Incentives could also be offered to merchants to encourage the use of eNaira for transactions. While acknowledging the Central Bank of Nigeria’s efforts to promote inclusivity through the eNaira, the paper stressed the need to address the challenges associated with remittances.
