EditorThe International Monetary Fund (IMF) is ready to collaborate with the Central Bank of Nigeria (CBN) on data analysis, cross-country studies, sharing the eNaira experience with other countries, and discussing further evolution of the eNaira including its design, regulatory framework, and other aspects.
An economist in the IMF African Department, Jack Ree who revealed this in his article titled: “Five Observations on Nigeria’s Central Bank Digital Currency,” on IMF blog added that the multilateral institution “remains available to help with technical assistance and policy advice.”
According to Ree, the IMF’s Monetary and Capital Markets Department has been involved in the eNaira rollout process, including by providing reviews of the product design.
“The 2021 IMF Article IV mission emphasized the need for monitoring risks and macro-financial impacts associated with a central bank digital currency,” he stated.
The Central Bank of Nigeria (CBN) officially launched the “ eNaira”—a central bank digital currency (CBDC)—on October 25, 2021. This is the second CBDC fully open to the public after the Bahamas.
Other countries and regions, such as China and the Eastern Caribbean Currency Union, have been conducting CBDC pilots with a subset of their citizens.
Given the size and complexity of Nigeria’seconomy, this launch is drawing substantial interest from the outside world—including from central banks, Ree observed.
According to the CBN, the eNaira is envisaged to bring multiple benefits, which are expected to materialize gradually as the eNaira becomes more widespread and is supported by a robust regulatory system.
Ree agrees with the benefits, adding that Nigeria is among the key remittance destinations in sub-Saharan Africa, with remittance receipts amounting to $24 billion in 2019.
Remittances typically are made through international money transfer operators (e.g., Western Union) with fees ranging from 1 percent to 5 percent of the value of the transaction.
Ree says the eNaira is expected to lower remittance transfer costs, making it easier for the Nigerian diaspora to remit funds to Nigeria by obtaining eNaira from international money transfer operators and transferring them to recipients in Nigeria by wallet-to-wallet transfers free of charge.
“Exchange rate reforms, including a unified market-clearing rate, that reduce the gap between official and parallel market exchange rates would enhance the incentives for using eNaira wallets to send remittances.
“Nigeria has a large informal economy, with transactions and employment equivalent, respectively, to over half of GDP and 80 percent of employment.
The eNaira is account-based, and transactions are in principle fully traceable, unlike token-based crypto asset transactions,” he explained.
According to him, once the eNaira becomes more widespread and embedded into the economy, it may bring greater transparency to informal payments and strengthen the tax base.
Informal and formal businesses may also benefit if eNaira adoption enhances consumption through greater financial inclusion.
However, like digital currencies elsewhere, the eNaira carries risks for monetary policy implementation, cyber security, operational resilience, and financial integrity and stability. But the authorities have taken measures to manage the risks the economist stated.
The transfer of funds from bank deposits to eNaira wallets is subject to daily transactions and balance limits to mitigate risks of diminishing the roles of banks and other financial institutions. Financial integrity risks, such as those arising from the potential use of the eNaira for monetary laundering, are mitigated by using a tiered identity verification system and applying more stringent controls to relatively less verified users.
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