eNaira Can Pose Risks To Nigeria’s Financial Stability, IMF Warns

By DAYO ADESULU

The International Monetary Fund (IMF) has warned the Central Bank of Nigeria to tread with caution the introduction of eNaira, adding that the digital currency poses risks to Nigeria’s financial stability.

Like other digital payment systems, the risks associated with the e-Naira initiative have led the International Monetary Fund (IMF) to observe that while the e-Naira has the potential for financial inclusion and boosting diaspora remittances, the CBN must closely watch its operations as it could pose risks to Nigeria’s financial stability.

While lauding the initiative, the IMF said: “Nigeria is among the key remittance destinations in sub-Saharan Africa, with remittance receipts amounting to $24 billion in 2019.” 

“Remittances typically are made through international money transfer operators (e.g., Western Union) with fees ranging from 1 percent to 5 percent of the value of the transaction. 

“The eNaira is expected to lower remittance transfer costs, making it easier for the Nigerian diaspora to remit funds to Nigeria 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 e-Naira wallets to send remittances.”

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On the risks, the IMF said, “Like digital currencies elsewhere, the e-Naira carries risks for monetary policy implementation, cyber security, operational resilience, and financial integrity and stability. 

“For example, e-Naira 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 e-Naira.”

The Fund said it was available to help with technical assistance and policy advice. 

The organisation disclosed that its Monetary and Capital Markets Department has been involved in the e-Naira rollout process, including by providing reviews of the product design. 

It said, “The IMF is ready to collaborate with the authorities on data analysis, cross-country studies, sharing the e-Naira experience with other countries, and discussing further evolution of the e-Naira including its design, regulatory framework, and other aspects.”

Attempts by criminals to manipulate e-Naira

Barely two days after its launch, had criminal elements attempted to defraud unsuspecting members of the public, using fake e-Naira twitter handle.  CBN’s eagle-eyed IT experts discovered that some unscrupulous elements had created a fake twitter handle with a view to defrauding innocent members of the public.

The apex bank had quickly alert the public of a fake e-Naira twitter handle with a warning to avoid it..

The Director, Corporate Communications, Mr.  Osita Nwanisobi, issued a press statement in which he attributed the fake e-Naira handle to the activities of criminals and warned the Nigerian public to guide against falling prey to the antics of such people.

According to him, the fraudsters have been using the twitter handle, (@e-Naira_cbdc), purported to belong to the CBN, to send messages relating to the digital currency in order to woo unsuspecting victims.

Mr. Nwanisobi said that the said twitter handle did not belong to the CBN and that the apex bank indeed had no twitter handle, having suspended its presence there, following the federal government ban on twitter, at the time.

Less than one year after the official launching of the digital currency by President Muhammadu Buhari, the CBN Governor announced that Transactions on the e-Naira platform had hit N4 billion.

 Mr. Emefiele gave the update, at the grand finale of the e-Naira Hackathon, in Abuja, two weeks ago, which also commenced activities for the second phase of the e-Naira.

According to him, “Since the launch of this great initiative, the e-Naira has reached 840,000 downloads, with about 270,000 active wallets comprising over 252,000 consumer wallets and 17,000 merchant wallets.

 “In addition, volume and value of transactions on the platform have been remarkable, reaching above 200,000 and N4 billion, respectively.”

The governor disclosed that despite the successes recorded on the initiative, the bank, in collaboration with private sector operators has started the second phase of the e-Naira.

His words, “Notwithstanding this appreciable progress, the second phase of the project has begun and it is intended to drive financial inclusion by onboarding unbanked and underserved users leveraging offline channels. 

“Hence, greater success is envisioned for the project with phase two expected to deliver more gains with a target of about 8,000,000 active users based on estimations using the diffusion of innovation model.”

Mr. Emefiele said that CBN remained strategic in charting the future of the Naira by balancing innovation with stability of the currency. 

He said, “Pursuant to achieving its mandate of preserving monetary and financial stability, the CBN is strategic in charting the future of Nigeria’s legal tender, be it in its traditional or digital form as the economy transits to a digital one as well as charting the course for innovation in the financial sector and in the infrastructure underpinning financial markets.

“Hence, the importance of getting the balance right between innovation and stability.

“Against this background, the launch of e-Naira was timely and strategic in complementing the various diversification and digitisation initiatives of the Federal Government including the launch of the Nigeria Digital Economy Policy and Strategy (NDEPS), The National Broadband Strategy, as well as the introduction of the Start-Up Bill and a host of others. 

E-Naira reducing cost of processing cash  

The CBN boss said that the e-Naira would make a significant positive difference to Nigeria and Nigerians, as it would ease their participation in the global digital economy. 

 His words, “Specifically, the e-Naira is expected to enhance financial inclusion, support poverty reduction, enable direct welfare disbursement to citizens, support a resilient payments ecosystem, improve availability and usability of central bank money, facilitate diaspora remittances, reduce the cost of processing cash, and reduce cost and improve efficiency of cross-border payment among others. 

“The e-Naira was also developed to provide Nigerians with a cheap, safe and trusted means of payment. Unlike the offline payments channels like agent networks, USSD, wearables, cards and near field communication technology, the e-Naira would give access to financial services to underserved and unbanked segments of the population.

 “Innovative products and services built on the e-Naira would enhance Nigerians’ participation in the digital economy and promote further development of a burgeoning Fintech ecosystem.”

In the second phase of the e-Naira initiative, Mr. Emefiele and his team are working to deepen the volume of transactions by bringing more Nigerians onboard through  making the digital currency more attractive to merchants and other members of the public.

Last week, he rolled out a reward scheme for e-Naira Merchants. 

While flagging off the Abuja e-Naira Merchants Mega-event in Abuja, the governor of the CBN announced a 50 percent service charge subsidy for the merchants,  in addition to providing them with promotional materials. 

He said, “Merchants such as petrol stations, supermarkets, e-Commerce and other businesses not only have significant roles to play in driving the adoption of the e-Naira, but can also leverage on the opportunities offered by e-Naira to improve cash management and make significant savings in operating cost. 

“More specifically, benefits to the merchants include reduced cash handling costs, elimination of failed transactions, instant settlement, increased speed of transactions, improvement in records keeping and elimination of challenges associated with giving change to customers, amongst others.”