Nigeria’s eNaira: IMF’s First-Year Assessment
Nigeria’s central bank digital currency (CBDC), eNaira, has completed over a year since its launch, and the International Monetary Fund (IMF) has recently released a working paper evaluating its performance during this period. The IMF researchers praised the eNaira’s debut year as “laudable,” while also providing some valuable suggestions for improvement.
The eNaira made its debut in October 2021, becoming the second CBDC in the world after the Bahamian Sand Dollar. According to the IMF’s paper, the eNaira’s retail aspect was intermediated, with no latency issues reported so far. However, it is yet to expand beyond its initial adopters. The Central Bank of Nigeria opted for a phased introduction, which delayed the achievement of two key goals for the CBDC: extending financial inclusion to the unbanked population and facilitating remittances.
During the analyzed period, only approximately 1.5% of wallets remained active on a weekly basis, and there were a total of 802,000 transactions. These figures indicate less than one transaction per wallet, with less than 1% of bank accounts in the country being associated with wallets. The IMF paper highlighted:
- “Like any network products with similar traits (e.g., credit card), breaking the initial low adoption equilibrium requires a mix of clever strategies and luck.”
The paper also raised a crucial question regarding the eNaira’s relationship with mobile money operators (MMOs) in Nigeria. It pondered whether the CBDC would compete with MMOs in the retail market or serve as a facilitator by bridging the gap between MMOs and eNaira. While the paper deemed it “hard to imagine” the eNaira replacing all MMOs’ services, it acknowledged the possibility of a difficult “industry reshuffle” if the eNaira were to act as a bridge.
As a single-currency system, the IMF noted that the eNaira cannot directly accommodate remittances. However, the paper suggested two potential solutions: allowing international money transfer operators to receive eNaira wallets or implementing intermediation. The researchers recommended the former option, although both choices would incur significant expenses. This expense is viewed as a significant issue, given the existence of a parallel underground market that serves the same purpose.
The paper put forth several recommendations to boost eNaira adoption. These include utilizing the CBDC for social payments in conjunction with MMOs to enhance the social cash transfer system and encourage wider adoption. Additionally, merchants could be incentivized to accept eNaira as a form of payment. While the Central Bank of Nigeria has initiated efforts to promote inclusivity through the eNaira, the paper noted that challenges persist with regard to remittances.