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Central Bank of Nigeria greenlights use of CBDC for international remittances

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After growing concerns over the future of its central bank digital currency (CBDC), Nigeria’s banking regulator has expanded the use cases for the eNaira beyond local transactions.

In its latest communique, the Central Bank of Nigeria (CBN) announced the approval of a plan to allow the eNaira to be used for foreign remittances. The new regime will see international money transfer operators (IMTOs) rely on the CBDC to process diaspora remittances upon meeting certain requirements.

“The Central Bank of Nigeria (CBN), in its efforts to liberalize the payout of diaspora remittances and promote the adoption of the eNaira, hereby announces the introduction of the eNaira as a payment option to recipients of diaspora remittance,” read the document from the Trade and Exchange Department.

Under the new regime, IMTOs are expected to apply for a one-time license to pay out funds in the eNaira, with the central bank providing account details for IMTOs to receive foreign currencies. The standing rules will require IMTOs to open merchant wallets with the banking regulator, funding the account with foreign currencies.

Using the eNaira for diaspora remittance is “optional” and will operate simultaneously with the dollar payment, according to the central bank. Dr. O.S. Nnaji, Director of the CBN’s Trade and Exchange Department, confirmed that the new eNaira remittance policy takes effect from June 15.

Experts note that the move by the central bank is akin to killing two birds with one stone. Firstly, the CBN is solving the nagging issue of dollar shortage in the country while addressing the challenge of sub-par eNaira adoption since its launch in October 2021.

The move comes after the sudden ousting of the CBN’s Governor Godwin Emefiele by the country’s new president, casting doubts over the future of the CBDC project. However, it appears the new administration will be keen on promoting the eNaira’s adoption, which has endured a torrid start since its launch.

A rough patch of the eNaira

In 2021, the CBN announced the launch of the eNaira after a false start in the summer to become the first African country to float CBDCs. However, since launching the eNaira, the adoption metrics have fallen way beyond expectation prompting the ex-CBN governor to blame commercial banks for stifling growth.

Several initiatives to trigger adoption have been launched with relative success, including widening the scope of payment, integrating USSD codes, and offering incentives for their use in the transportation sector.

A cash shortage in early 2023 led to a 63% spike in eNaira transactions, bringing the number of CBDC wallets to 13 million as Nigerians flocked to the offering after over a year since its launch.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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