Yesterday the Central Bank of Nigeria issued a statement reasserting its confidence in its central bank digital currency (CBDC). The note addressed claims that an eNaira CBDC would pose a threat to Nigeria’s financial stability.
Last month the Bank published a 300-page book, detailing the financial implications of adopting a CBDC. The book covered various topics, including the potential effect of a CBDC on deposit liabilities, regulatory concerns, social welfare and public sentiment.
The announcement comes amid an array of fake news stories circulated amongst both traditional and social media platforms, claiming that the adoption of an eNaira would significantly undermine Nigeria’s financial stability. The bank suggested authors based these stories on misconstrued concerns regarding the use of cryptocurrencies, a topic the book also covered in great detail.
Whilst some stories were particularly outlandish, the underlying sentiment that an eNaira could impact financial stability is not baseless. CBDC accounts could substitute traditional bank deposits, undermining the importance of commercial banks. This would lead to greater centralization, with significant implications for financial stability. That’s why many central banks plan CBDC holding limits. Again, this topic was addressed in the Bank’s 300-page book.
These issues also depend on the mass adoption of an eNaira. So far the IMF has reported slow progress and suggested the bank should use government aid programs, merchant payment systems and better FX rates for remittances to encourage wider adoption.
Nigeria was the first African country to roll out a CBDC, and the success of the eNaira could set a precedent for CBDC adoption and design across the continent. The Nigerian Central Bank is currently exploring programmability functions, which could make the eNaira more user-friendly and increase the efficiency of government aid spending.