According to a recent study conducted by the Central Bank of Nigeria (CBN), the e-naira central bank digital currency (CBDC), which was launched almost two years ago, presents a risk to financial stability in the country. Despite its potential to narrow the financial inclusion gap and boost the stability of banks’ deposit bases, the study highlights concerns about the CBDC’s impact on Nigeria’s financial landscape.
The e-naira was introduced in late October 2021, with the goal of enhancing financial inclusion in Nigeria. However, its adoption has been slower than anticipated. As of August 2022, there were fewer than one million downloads of the e-naira app, indicating a lukewarm response from the public. Nevertheless, the CBN has continued to promote the CBDC and offer incentives to potential users.
One of the primary advantages of the CBDC, as emphasized by the CBN, is its potential to deepen financial inclusion. The report highlights the impact of the e-naira USSD code for non-smartphone users, which has contributed to an increase in e-naira transactions. Additionally, the CBN argues that the CBDC can expand the size and stability of banks’ deposit bases.
However, the study also raises concerns about the conversion of bank deposits to e-naira and its potential impact on the stability of the banking system. Since the CBDC’s introduction, bank deposit conversion to e-naira has shown significant monthly growth, totaling approximately N1.66 billion (around $2.1 million). The e-naira’s circulation as a ratio of average banking system liquidity has also increased, reaching highs of 0.2 percent in certain months.
Furthermore, the CBN report suggests that the e-naira may negatively affect banks’ overall profitability by reducing non-interest income. It also highlights increased cybersecurity risks associated with the adoption of a CBDC.
While the e-naira offers several potential benefits, including financial inclusion and stability, the CBN’s study underscores the importance of carefully managing the risks and challenges associated with its implementation to ensure the overall health of Nigeria’s financial system.
