Nigeria’s central bank’s digital currency, the eNaira, has been praised for improving financial inclusion in the country, but a new report warns that it could pose risks to financial stability.
The eNaira, launched in October 2021 by former CBN governor Godwin Emefiele, is a digital form of the Nigerian naira that can be stored in wallets linked to the CBN.
According to a report titled “Economics of Digital Currency” obtained by The PUNCH, the eNaira could reduce bank deposits and lending activities, as customers can easily convert their money into eNaira and keep it in their wallets.
The report said that the conversion of bank deposits to eNaira has grown by an average of 78.3% monthly and reached about N1.66bn [$2.1 million] as of July 2022.
It also said that the eNaira in circulation as a percentage of average banking system liquidity has averaged 0.1%, hitting highs of 0.2% in May and August 2022.
The report added that the eNaira could affect banks’ profitability by lowering their non-interest income. It also said that the eNaira could increase the risk of cyberattacks due to its digital nature.
The eNaira has not gained much popularity among individual users, as only 10,420 wallets were active as of July 2022, out of 187,190 wallets that were ready for use.
The CBN issued N2 billion in eNaira as of December 2021, which sparked debates in the financial sector about the challenges and implications of the eNaira for commercial banks.
The report highlighted some of the barriers that hinder the widespread adoption of the eNaira in Nigeria’s digital financial system.
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