IMF Says eNaira Can Attract 90% Of Nigerians, Shrink Informal Sector

The International Monetary Fund (IMF), says the eNaira, the digital currency unveiled by the Central Bank of Nigeria (CBN) last month, is capable of improving the rate of financial inclusion in the country but warned of potential risks that must be managed, for the country to reap benefits of joining the digital currency league, given the size and complexity of her economy.

According to the Country Focus on Nigeria by Jack Ree, an economist in IMF’s African Department, the eNaira is therefore expected to enable more direct and effective implementation of social transfer programmes, ensuring that up to 90 percent of the population use the eNaira.

Specifically, the fund estimates that the eNaira has the capacity to increase financial inclusion from just 38 million bank account holders, representing 36 percent of the adult population, to eventually include anyone with a mobile phone, even if they do not have a bank account.

By lowering remittance transfer costs, the IMF expects that the eNaira would make it easier for the Nigerian diaspora to remit funds by obtaining eNaira from international money transfer operators and transferring them to recipients in Nigeria by wallet-to-wallet transfers free of charge.

“Exchange rate reforms, including a unified market-clearing rate, that reduce the gap between official and parallel market exchange rates would enhance the incentives for using eNaira wallets to send remittances,” Ree added.

given these factors, these developments are of substantial interest from the outside world—including other central banks.

The eNaira, just like the Nigerian legal tender- the Naira and kobo, is a liability of the CBN, using the same blockchain technology as Bitcoin or Ethereum and, like them, is stored in digital wallets and can be used for payment transactions; transferred digitally and at virtually no cost to anyone in the world with an eNaira wallet.

Like digital currencies elsewhere, it listed risks carried by the eNaira include “monetary policy implementation, cyber security, operational resilience, and financial integrity and stability.

“For example, eNaira wallets may be perceived, or even effectively function, as

a deposit at the central bank, which may reduce demand for deposits in commercial banks. Relying as it does on digital technology, there is a need to manage cybersecurity and operational risks associated with the eNaira,” it added.

To mitigate the potential risks, measures taken by the CBN include subjecting transfer of funds from bank deposits to eNaira wallets is to daily transactions and balance limits “to mitigate risks of diminishing the roles of banks and other financial institutions. Financial integrity risks, such as those arising from the potential use of the eNaira for monetary laundering, are mitigated by using a tiered identity verification system and applying more stringent controls to relatively less verified users.

“For example, for now only people with a bank verification number can open a wallet, but over time coverage will be expanded to people with registered SIM cards and to those with mobile phones but no ID numbers. The latter categories of holders would be subject to tighter transactions and balance limits. Even so, wallet holders who meet the highest identity verification standards cannot hold more than five million naira (about $12,200) each in their eNaira wallets. To address cybersecurity risk, regular IT security assessments are expected to be conducted.

The IMF says it remains available to help with technical assistance and policy advice and has been involved in the eNaira rollout process, including by providing reviews of the product design. The 2021 IMF Article IV mission emphasized the need for monitoring risks and macro-financial impacts associated with a central bank digital currency.