#Table of Contents

It is reported that due to a shortage of cash, Nigerians are turning to the country’s central bank digital currency (CBDC). The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, told reporters at a news conference that since October last year, the number of eNaira wallets has increased more than 12 times to 13 million, and this year’s transaction value has increased 63% to 22 billion naira (US $48 million). The country’s CBDC was launched in October 2021. (Bloomberg)

The number of eNaira wallets in Nigeria has reached 13 million, with a 63% increase in transaction value during the year

1. Introduction
2. What is Central Bank Digital Currency (CBDC)?
3. The Launch of Nigeria’s CBDC
4. The Shortage of Cash and eNaira Adoption in Nigeria
5. The Advantages of eNaira
6. The Future of CBDCs in Nigeria
7. The Potentials and Risks of CBDCs
8. Conclusion
9. FAQs

The Shortage of Cash in Nigeria and the Rapid Adoption of eNaira

Nigeria has been facing severe economic challenges in recent years, including inflation, rising unemployment rates, and a shortage of cash. To combat this issue, the Central Bank of Nigeria (CBN) launched the eNaira, a digital currency designed to improve cash transactions and financial inclusion in the country.
According to the Governor of the CBN, Godwin Emefiele, there has been a sharp increase in the adoption of eNaira since its launch in October 2021. The number of eNaira wallets has increased by over 12 times to 13 million, and the transaction value has grown by 63% to 22 billion naira (US $48 million) this year alone. This rapid adoption of digital currency in Nigeria can be attributed to the severe shortage of cash in the country.

What is Central Bank Digital Currency (CBDC)?

CBDC is a digital form of fiat money issued by central banks that is backed by the full faith and credit of the government. It is designed to replace cash transactions entirely or supplement them to reduce costs, enhance financial inclusion, and provide greater security in transactions. CBDCs are digital tokens that serve as a legal tender, and the central bank issues them with the intent of promoting efficiency, transparency, and accountability in the financial system.

The Launch of Nigeria’s CBDC

The eNaira is Nigeria’s digital currency launched by the CBN in October 2021. The eNaira is pegged at 1:1 exchange rate with the naira to maintain stability and usability. CBN’s introducing the eNaira is expected to bridge the massive financial gap the Nigerians face and help cement Nigeria’s fintech market. At the moment, Nigeria has a cash-to-GDP ratio of 2.8% compared to the global average of about 9%. The issuance of eNaira will also increase financial transactions in the country, thereby creating more business opportunities and boosting the economy.

The Shortage of Cash and eNaira Adoption in Nigeria

One major challenge that has plagued Nigeria in recent years is the shortage of cash. As a result, many Nigerians have turned to digital currencies, especially eNaira for their daily transactions. This has led to a significant increase in the adoption of eNaira in Nigeria. E-Naira presents several benefits, such as solving the liquidity problem, increasing efficiency in financial transactions, reducing the cost of printing and managing currency notes and easing the burden on banks to distribute and manage cash that Nigeria currently experiences.

The Advantages of eNaira

The use of eNaira as a digital currency has numerous benefits for the country. The first benefit is the ability to reduce the cost of printing and managing currency notes. This is achieved by digitizing the currency to record and track transactions accurately. The adoption of eNaira has also led to financial inclusion in the country, allowing more people to access financial services. E-Naira is also highly secure with cryptographic mechanisms that protect both the users and the banking institutions from fraud and cyber-attacks, representing a use-case that traditional banks can leverage to test matching the strengths of the IoT with blockchain-based cybersecurity principles.

The Future of CBDCs in Nigeria

The launch of eNaira is just the beginning of Nigeria’s journey in the digital currency space. The number of eNaira wallets has grown exponentially since its launch, and this is expected to continue increasing as more Nigerians turn to digital currency. It is essential for the CBN to continue to educate Nigerians on the benefits of eNaira and improve financial literacy. The future of digital currency in Nigeria may include wider adoption of cryptocurrencies, but cryptocurrency’s future regulation remains uncertain in terms of potential risks and impacts.

The Potentials and Risks of CBDCs

CBDCs can potentially drive digital transformation, reduce transaction costs, increase financial inclusion, and foster competition among traditional banks. However, they also present new risks such as data privacy concerns, fraud, cyber-attacks, and monetary destabilization. As central banks around the world continue to explore the use of CBDCs, proper regulation that protects users and the economy as a whole is critical.

Conclusion

Nigeria’s adoption of eNaira has been impressive, with over 13 million wallets created and a transaction value of US $48 million. This is a significant leap forward in the country’s quest for financial inclusion and the move towards digitalization. However, it is essential to create proper regulation that protects users and the economy as a whole.

FAQs

1. How does eNaira benefit Nigeria’s economy?
eNaira helps boost the Nigerian economy by improving financial inclusion, bridging the financial gap in the country, reducing the cost of printing and managing physical notes, and creating a more secure and efficient financial system.
2. Is eNaira legal tender in Nigeria?
Yes, eNaira is legal tender in Nigeria backed by the full faith and credit of the government.
3. What potential risks do CBDCs present?
CBDCs present risks such as data privacy concerns, fraud, cyber-attacks, and monetary destabilization. Proper regulation must be put in place to protect the users and the economy as a whole.