IMF: Nigeria’s eNaira could be used for terrorism financing, money laundering

The International Monetary Fund (IMF) has shot a warning against Nigeria’s central bank digital currency (CBDC), saying the eNaira is prone to be used in money laundering and terrorism financing. It called on the Central Bank of Nigeria (CBN) to fix the existing deficiencies in its AML framework to prevent this, even as it acknowledged that the CBDC could play a big role in financial inclusion.

Nigeria became the first country in Africa and among the first globally to launch its CBDC in 2021. As CoinGeek reported, the eNaira got off to a rough start, but the CBN was able to fix the glitches quickly, and in its first month, it attracted half a million users, with 80,000 being merchants.

In a consultation paper published recently, the Washington-based organization noted that the eNaira offers low-cost mobile-first financial transactions that could “potentially increase financial inclusion over time in rural areas and help meet the authorities’ ambitious target to increase the share of financially included adults to 95 percent.”

The eNaira will also play a significant role in facilitating remittances, the IMF said, pointing out that in due time, Nigerians in the diaspora will be allowed to access the CBDC through international money transfer operators. 

It will also cut down on informal and illegal activities as the transactions will be fully traceable.

However, the IMF said the CBDC could also potentially be exploited by criminals. It called on the central bank to be vigilant regarding the risks linked to cybersecurity, monetary policy implementation, financial integrity and stability, operational resilience, and bank funding.

“Prospective expansion of eNaira use to cross-border fund transfers and agency bank networks may cause new money-laundering/financing of terrorism risks… There are financial integrity risks which are mitigated by using a tiered identity verification system and applying more stringent controls to relatively less verified users,” the paper stated.

The eNaira hasn’t been as successful as predicted. In a country with 206 million people, only $450,000 has been moved through digital currency. 

On its part, the IMF has been quick to preach caution when approaching CBDCs. It has also been a strong critic of digital currencies and recently warned El Salvador against its decision to make BTC legal tender.

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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