CBN Says eNaira Poses Threat to Nigeria's Financial Stability, Says Banks Can't Use Its Deposits
- The Central Bank of Nigeria has reported that the eNaira is a danger to financial stability in Nigeria
- The bank released the report ahead of the second anniversary of the digital currency
- The report said the slow adoption of the eNaira is because deposit conversions are kept with CBN and not commercial banks
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Despite its success in bridging the gap in financial inclusion in Nigeria, a recent report raised worries about the Central Bank of Nigeria's digital currency, the eNaira.
Launched on October 25, 2021, under the erstwhile Governor of the Central Bank of Nigeria, Godwin Emefiele, the eNaira will mark its second anniversary this month.
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CBN says that about N1.66 billion has been converted to naira
CBN launched the eNaira at the peak of cryptocurrency hype in Nigeria primarily to lure youths away from crypto uses. It projected it to boost financial inclusion and expand banks' deposit base.
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However, in its report, the apex bank warns about stability trouble due to converting bank deposits into eNaira.
According to the report, bank deposit conversion to eNaira has shown a monthly growth of 78.3% since its launch, averaging about N1.66 billion.
"Furthermore, eNaira in circulation as a ratio of average banking system liquidity has averaged 0.1 per cent, reaching highs of 0.2 per cent in May and August 2022," the CBN report noted.
The report stated that the impact came from the fact that funds converted by customers into the digital currency held in wallets are kept with the CBN and unavailable for lending by commercial banks.
The financial institution regulator reportedly minted a total of N2 billion in eNaira.
Analysts say the slow in eNaira adoption is due to non-availability in commercial banks
Banks' achievements and subtle challenges due to the eNaira's issuance and exchange processes have generated debates in the financial sector.
Punch said the apex bank reported that the slow growth is due to the slow adoption rate among users, as seen in the low number of active wallets, which stands at 10,420.
Per the report, the number is an improvement from previous months, showing 187,190 activated wallets for use as of July 2022.
CBN noted that Africa's first CBDC can negatively affect banks' overall profit through reduced non-interest income, stating that the digital currency is also prone to cyberattacks.
CBN asks Nigerians abroad to use eNaira to remit funds
Despite the unsavoury report about the eNaira, the apex bank pitched it to diasporan Nigerians as a means of funds remittance to the country.
In June this year, the Central Bank of Nigeria (CBN) asked Nigerians abroad to consider eNaira as a payment option for diaspora remittances.
The suggestion is in the bank's circular titled, "Operational Framework for eNaira Payment Option to Recipients of Diaspora Remittances," dated June 15, 2023, a previous report by Legit.ng says.
In the circular, addressed to International Money Transfer Operators (IMTOs) and the public and signed by CBN's director of Trade and Exchange Department, Ozoemena Nnaji, the apex bank noted that the move was in furtherance of efforts to liberalize the payout of diaspora remittances.
According to the guidelines, IMTOs must request a one-time "No-Objection" approval from the central bank to make payouts in eNaira.
CBN pitches eNaira as the best option for cash transfer to Nigerians
Legit.ng reported that the apex bank asked the Nigerian government to use digital currency for its Conditional Cash Transfer initiative.
The Central Bank of Nigeria projected the CBDC to the federal government as the best alternative for sharing $800 million, about N368.8 billion, in its National Social Safety Net Programme Scale Up.
The pitch by the CBN was an effort to drive and strengthen its cashless policy.
The request was contained in CBN's National Fintech Strategy document.
The CBN says the document was designed by the National Financial Inclusion Steering Committee headed by the ex-CBN Governor, Godwin Emefiele.
Nigeria's e-Naira upgraded with new feature to enable use without smartphones and the Internet
Legit. ng reported that Nigeria’s digital currency, the e-Naira, now includes a Near Field Communication (NFC) feature. This chip-enabled device allows its use without smartphones or internet access.
The Central Bank of Nigeria (CBN) said the development will allow wallet owners to transact financial businesses seamlessly with tags attached to their phones.
This means that users will need little or no human effort in the future as the NFC technology is made up of a short-range high-frequency wireless communication technology that facilitates data exchange between devices over a 10cm distance.
Source: Legit.ng
