In October 2021, Nigeria made history as a pioneer in the world of digital currencies when it launched the eNaira. While it hasn’t received the adoption Nigeria expected, the International Monetary Fund (IMF) says it was a bold move for the country. In its first-year assessment of the digital currency, the financial agency lauded Nigeria for its progress but noted there’s room for improvement.
Nigeria was the second country to launch a central bank digital currency (CBDC) after the Bahamas and was the first in Africa. The eNaira has become a global case study for CBDCs at a time when close to 100 central banks are exploring digital currencies.
“Hence, the degree of Nigeria’s success in CBDC will critically affect other central banks’ decisions on whether (and how) to introduce their own CBDCs,” the IMF says in a paper titled “Nigeria’s eNaira, One Year After.”
IMF delved into eNaira’s design, functionalities, challenges, risks, and opportunities. On design, it noted that while using a blockchain for the currency makes it less prone to hacking and eliminates a single point of failure, it poses “technical limitations in the speed of processing and sealing a block.”
Nigeria’s digital currency has not faced any latency challenges as it has failed to attract users. A year after its launch in November 2022, it hadn’t hit a million users. A month ago, the Central Bank of Nigeria (CBN) claimed adoption had accelerated and that since then, the number of wallets had shot to 13 million, a 1,200% increase in five months.
The slow adoption is due to the CBN’s phased launch, which granted the first use of the eNaira to bank account holders, IMF says.
IMF: Mobile money, remittances could accelerate eNaira adoption
The IMF suggests rethinking the eNaira’s relationship with mobile money to accelerate adoption. It recommends integrating the digital currency with mobile money to allow users to easily send, receive, and make payments in eNaira through mobile money services.
CBN should also integrate eNaira into remittances by granting foreign money transmitters access to the CBDC. Domestic money transmitters can, alternatively, receive the foreign currency payment and avail it to users in the form of the CBDC.
While the IMF is lauding Nigeria now, just two weeks ago, Managing Director Kristalina Georgieva warned central banks against retail CBDCs.
“We think that wholesale CBDCs can be put in place with fairly little space for undesirable surprises, whereas retail CBDCs completely transform the financial system in a way that we don’t quite know what consequences it could bring,” said Georgieva, a former World Bank CEO.
Nigeria’s struggles with eNaira come against the backdrop of surging digital asset adoption. The country is a global leader in digital currency adoption and ranks in the top 10 countries for peer-to-peer trading volume. However, Nigerians remain either distrustful of digital currency or believe that mobile money, banks, and cash are sufficient for payments.
While it was Nigeria that first launched a CBDC, there are other African countries, such as Zimbabwe, that need a digital currency. The Southern African country has been going through a currency nightmare for nearly two decades.
Adopting the U.S. dollar for a decade just didn’t cut it and in 2019, it went back to the flailing Zimbabwean dollar, which continues to lose its value at an alarming rate. Zimbabwean merchants have been forced to become creative, including by creating their own ‘money’ and giving change in sweets, fruits, and cheese.
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.
Watch: To boost blockchain adoption, education is key
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
