IMF sees room for eNaira improvement in first-year assessment

The eNaira digital currency (CBDC) from the Central Bank of Nigeria is more than a year old, and the International Monetary Fund (IMF) has a belated birthday present for it, in the form of a working paper assessing its first-year performance. “Commendable,” said IMF researchers, but there were also a few suggestions.

The eNaira was the world’s second CBDC, premiering in October 2021, following the Bahamian sand dollar. The paper found its retail side to be mediated, but had no issues with latency as it has yet to make its breakthrough past its first users. The Central Bank of Nigeria (CBNs) introduced a phased introduction, delaying two of the CBDC’s biggest goals: expanding financial inclusion to unbanked people and facilitating remittances, as determined by IMF officials.

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Only about 1.5% of the portfolios are active each week and there were only 802,000 trades in total during the period under review. The numbers represent less than one per wallet and less than 1% of bank accounts in the country have wallets. The newspaper noted:

“Like all network products with similar characteristics (e.g. credit card), breaking the initial low acceptance equilibrium requires a combination of smart strategies and luck.”

Mobile money operators (MMOs) have a huge network in Nigeria, and eNaira’s relationship with that network is an important question addressed in the paper. The CBDC could compete with the MMOs in the retail market or facilitate the operations of MMOs by providing a bridge between them. The newspaper called the replacement of all MMO services with eNaira “difficult to envision”, but also noted that a bridging function could trigger a difficult “realignment of the industry”.

CoinW Africa Today#Nigeria was the second country after the Bahamas to roll out a CBDC. After the introduction of e-Naira in Nigeria in October, #South Africa And #Ghana pilots are underway while other countries are in the research phase, the IMF said in its digital money and fintech blog. pic.twitter.com/WJF5hILn97

— CoinW Africa official (@CoinW_Africa) June 27, 2022

As a single-currency system, the IMF says the eNaira is unable to accommodate remittances directly, but said it could be remedied by allowing international money transfer companies (IMTOs) to receive eNaira wallets or through of mediation. Researchers recommended the former. Although both options will remain expensive, which the IMF considers a serious problem given the parallel, underground market that serves the same purpose.

The paper recommends some steps to boost the use of eNaira, such as using it for social payments in conjunction with MMOs that improve the social money transfer system and increase adoption. Traders can also be incentivized to use eNaira. The CBN has started working on inclusiveness through the eNaira, the paper notes, but remittances remain problematic.

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