Monday, May 20, 2024

In a recent study conducted by the Central Bank of Nigeria (CBN), concerns have emerged regarding the potential threat to financial stability posed by the e-naira, the central bank’s digital currency. Despite its stated objective of enhancing financial inclusion and expanding the stability of banks’ deposit base, the e-naira’s introduction has raised questions about its impact.

Nigeria’s Pursuit of Financial Inclusion

The CBN study acknowledges the importance of improving Nigeria’s financial inclusion rate, aiming to increase it from 64.1 percent in 2021 to a target of 95.0 percent by 2024. The e-naira, launched in late October 2021 under the leadership of former CBN governor Godwin Emefiele, was envisioned as a tool to bridge this gap.

However, the adoption of the e-naira has been less enthusiastic than expected. Reports from August 2022 indicated that the e-naira app had garnered fewer than one million downloads in the first year following its launch, a figure that contrasts starkly with Nigeria’s adult population of over 130 million. This tepid reception among the public has not deterred the CBN from actively promoting the digital currency and offering incentives to potential users.

Balancing Financial Inclusion and Stability

One of the primary advantages emphasized by the CBN in support of the e-naira is the deepening of financial inclusion. The introduction of the e-naira USSD code for non-smartphone users was highlighted as a successful strategy to increase e-naira transactions. Furthermore, the CBN contends that the CBDC will enhance the size and stability of banks’ deposit base.

However, the CBN’s own report expresses concerns about the potential risks associated with the conversion of bank deposits to e-naira. The report cites the significant growth in bank deposit conversion to e-naira since its inception, with an average monthly growth rate of 78.3 percent, totaling approximately N1.66 billion ($2.1 million). Additionally, the e-naira’s circulation as a ratio of average banking system liquidity has ranged from 0.1 percent to 0.2 percent, with peaks in May and August 2022.

Challenges and Considerations

The CBN report goes further to identify potential challenges related to the e-naira. It suggests that the digital currency could adversely impact banks’ overall profitability by reducing non-interest income. Furthermore, the adoption of a central bank digital currency introduces heightened cybersecurity risks, as acknowledged in the report.

In conclusion, while the e-naira was introduced with the noble intention of enhancing financial inclusion and the stability of the banking sector, the CBN’s own study raises valid concerns about its potential implications for financial stability. These findings underscore the delicate balance that must be struck when implementing central bank digital currencies to ensure they achieve their intended goals without jeopardizing the stability of the financial system.

Frequently Asked Questions (FAQs) about CBDC Impact

What is the e-naira, and why was it introduced in Nigeria?

The e-naira is a central bank digital currency (CBDC) introduced in Nigeria in late October 2021. It was launched with the goal of enhancing financial inclusion and expanding the stability of banks’ deposit base.

What is the current state of financial inclusion in Nigeria?

As of 2021, Nigeria had a financial inclusion rate of 64.1 percent. The government aims to increase this rate to 95.0 percent by 2024, with the help of initiatives like the e-naira.

How has the e-naira been received by the Nigerian population?

The adoption of the e-naira has been somewhat lukewarm, with fewer than one million downloads of the e-naira app in its first year, despite Nigeria’s adult population of over 130 million.

What benefits does the Central Bank of Nigeria (CBN) associate with the e-naira?

The CBN sees the e-naira as a means to deepen financial inclusion and increase the size and stability of banks’ deposit base.

What concerns does the CBN’s report raise regarding the e-naira’s impact?

The report expresses concerns about the potential risks associated with converting bank deposits to e-naira, citing significant growth in conversion rates. It also highlights potential negative impacts on banks’ profitability and increased cybersecurity risks.

How does the e-naira USSD code contribute to its adoption?

The e-naira USSD code was introduced to cater to non-smartphone users and has been successful in increasing e-naira transactions.

What does the CBN report suggest about the future of the e-naira?

While the e-naira has advantages, the CBN’s report underscores the need to carefully balance its benefits with potential risks to ensure its successful implementation and avoid destabilizing the financial system.

More about CBDC Impact

  • Central Bank of Nigeria Official Website
  • [ News Article on E-naira Adoption](Include the link to the specific article if available)
  • [CBN Report on the Economics of Digital Currencies](Include the link to the report if available)


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NaijaBizOwner September 27, 2023 - 11:38 pm

Financial inclzn rise gud, but CBN say e-naira trouble. Hope dey fix, banks no lose too much.

CryptoExpert23 September 28, 2023 - 11:28 am

interesting article, e-naira seems like got probs, no big downloads, CBDC risk big bank deposit, hmmm.

FinanceGeek September 28, 2023 - 2:12 pm

CBN push e-naira, but public no like. 130M adults, 1M downloads, not good math. Need more info on USSD success.

EcoWatchDude September 28, 2023 - 4:31 pm

CBN report show e-naira prob, bank profit drop, cybersecurity risk. Gov needs fix.


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