A recent study conducted by the Central Bank of Nigeria (CBN) has highlighted concerns regarding the potential impact of the country’s nearly two-year-old e-naira central bank digital currency (CBDC) on financial stability. This is despite the anticipated benefits of such a digital currency, which could enhance Nigeria’s financial inclusion rate from the 64.1 percent recorded in 2021 to the targeted 95.0 percent by 2024.
Launched in late October 2021, the e-naira initiative, championed by former CBN governor Godwin Emefiele, has not garnered widespread adoption among the Nigerian population. As previously reported by Bitcoin.com News in August 2022, the e-naira app had fewer than one million downloads approximately one year after its CBDC introduction.
Numerous observers have pointed to this low download count in comparison to Nigeria’s population of over 130 million adults as an indicator of the public’s lukewarm response to the CBDC’s introduction. Nevertheless, the Nigerian Central Bank’s efforts to promote and incentivize e-naira adoption continue.
Enhancing the Stability of Banking Deposits
One of the primary advantages repeatedly emphasized by the CBN in support of the CBDC is the expansion of financial inclusion. The CBN’s report titled “Economics of Digital Currencies” further discusses the positive impact of the e-naira USSD code for non-smartphone users, which has contributed to increased e-naira transaction volumes. Additionally, the central bank claims that the CBDC will bolster the size and stability of banks’ deposit bases.
However, despite the expected benefits of a CBDC, the CBN’s report also highlights potential risks associated with the conversion of traditional bank deposits into e-naira. The report points to the significant growth in the conversion of bank deposits to e-naira since the CBDC’s inception.
“Since its introduction, the conversion of bank deposits to e-naira has experienced an average monthly growth rate of 78.3 percent, totaling approximately N1.66 billion [$2.1 million]. Furthermore, the proportion of e-naira in circulation relative to the average liquidity in the banking system has averaged 0.1 percent, with peaks of 0.2 percent in May and August 2022,” as noted in the CBN report.
The CBN also raises concerns about the potential negative impact on banks’ overall profitability due to reduced non-interest income resulting from the CBDC’s adoption. Additionally, the report underscores the increased cybersecurity risks associated with a CBDC.