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IMF report explores Nigeria’s slow CBDC adoption, future remittance use

enaira currency cbdc nigeria

Last week, the International Monetary Fund (IMF) published a report assessing the progress of Nigeria’s central bank digital currency (CBDC) after its introduction in October 2021. The paper notes the eNaira’s slow adoption and takes stock of the Central Bank of Nigeria’s efforts to encourage its usage, including for cross-border remittances. It recommends promoting the use of the CBDC for government aid programs, boosting merchant adoption, and offering attractive eNaira FX rates to discourage unofficial remittance routes. 

Nigeria’s eNaira, one year on

More than one year after its launch, Nigeria’s CBDC adoption remains “disappointingly low,” according to the IMF. Wallet downloads saw some initial success, reaching 500,000 units in the first 25 days, but quickly slowed down as time passed, reaching 860,000 by November 2022. Adoption has been particularly slow among merchants, but retail customers have generally failed to sign up, with the total number of onboarded clients struggling to reach 1% of active bank accounts.

Similarly, both the number and value of CBDC transactions have been somewhat limited. The eNaira has seen a recent surge amid cash shortages, but the vast majority (98.5%) of wallets remain unused on any given week, suggesting very little regular use. Additionally, the paper notes that “the total number of eNaira transactions since the inception (around 802,000) is less than the number of eNaira wallets—implying that bulk of the current wallet holders have not used their wallets more than once after opening.”

The Fund believes one reason behind the eNaira’s slow adoption could be Nigeria’s phased CBDC approach, which initially granted access only to bank account holders. To address the primary CBDC goal of financial inclusion, the central bank has since moved on to phase 2 and expanded coverage to the unbanked population and those without internet through a tiered KYC system, with both transaction and balance caps depending on the level of information provided.

Steps to expand CBDC adoption

According to the report, Nigeria’s central bank will need to consider policy adjustments to increase adoption and enable the CBDC’s full potential. One recommendation is to integrate the eNaira with the country’s fragmented mobile money system to enhance the efficacy of social cash transfers. Government aid programs have recently been driving adoption.

Another suggestion is to boost merchant adoption to increase the eNaira’s network effects and attract other users. The IMF notes that integrating benefits such as programmable payments or cash rebates could help overcome sluggish consumer adoption and accelerate private sector investment.

The future of remittances with CBDC

Lastly, the paper refers to the eNaira’s future use for remittances, one of the key motivations behind the CBDC project. Historically, Nigerians have a tendency to use unofficial routes for remittances, the so-called parallel market. This might involve carrying foreign cash into Nigeria and exchanging it locally at ‘parallel market rates’. Another avenue is for an ex-pat Nigerian living in the U.S. to make a dollar payment on behalf of a Nigerian and be compensated in Naira within Nigeria. The IMF argued that exchange rates involved with any eNaira conversion would have to be close to parallel market rates to get user adoption.

Nigeria is among the world’s key remittance destinations, but alternative channels make tracing money flows into the economy difficult. The IMF notes that the eNaira has great potential to streamline the remittance process, which could help increase transparency, broaden the country’s tax base, and, most importantly, reduce costs for the sender.

The central bank is considering granting foreign international money transfer operators such as Western Union access to the CBDC (possibly via a bank), allowing them to sell eNaira directly to the remittance sender.

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