Abuja, 22 November 2021 (TDI): The Central Bank of Nigeria (CBN) officially launched the eNaira currency. It is a central bank digital currency (CBDC). According to the IMF, eNaira is the world’s second central bank digital currency that is fully open to the public.
eNaira
eNaira is the liability of the CBN. Moreover, it is stored in digital wallets. It can also be used for payment transactions. It can transfer virtually or digitally at no cost. The eNaira uses the same blockchain technology as Bitcoin or Ethereum.
However, there are important differences. Firstly ” It features stringent access right controls by the central bank”. Secondly, it is not a financial asset in itself, it is a digital form of a national currency.
Key benefits of eNaira
The eNaira is envisaged to bring multiple benefits. Firstly, there will be an increase in financial inclusion. The eNaira wallet is provided not only to people with bank accounts but also to anyone with a mobile phone.
In Nigeria, many people don’t have bank accounts. This will facilitate more direct along with the effective implementation of social transfers programs. In Nigeria, this initiative would enable up to 90% of the population to use this newly launched currency.
Secondly, it will facilitate remittances. Nigeria is among the key remittance destinations in sub-Saharan Africa. The remittance receipts amounted to $24 billion in 2019. These transfers use international money transfer operators.
The fees range from 1% to 5% of the value of the transaction. The expectation of eNaira is to lower remittance transfer costs. It will make it easier for the Nigerian diaspora to remit funds to Nigeria. The wallet-to-wallet transfers are free of charge.
Lastly, it will reduce informality, because Nigeria has a large informal economy. The transactions and employment are equivalent to over half of GDP and 80 percent of employment. Once the eNaira becomes embedded into the economy. It will bring transparency to informal payments. Moreover, it will strengthen the tax base.
Potential Risks
eNaira carries risks for monetary policy implementation. For instance cyber security, along with operational resilience, and financial integrity. It is digital technology. There is a need to manage cybersecurity along with the operational risks associated with it.
IMF’s Role
The IMF remains available to help with technical assistance along with policy advice. In the entire roll Out process, IMF’s Monetary and Capital Markets Department was involved. They have also provided reviews of the product design.
The 2021 IMF Article IV mission emphasized the need for monitoring risks. Moreover, they also stressed the macro-financial impacts associated with a central bank’s digital currency. The IMF is ready to collaborate with the authorities on data analysis along with cross-country studies.
