Nigeria’s e-naira CBDC Poses Risk to Financial Stability, CBN Study Shows
A recent study by the Central Bank of Nigeria (CBN) has revealed that the country’s e-naira central bank digital currency (CBDC) could pose a risk to financial stability. Despite the potential benefits of the CBDC in improving Nigeria’s financial inclusion rate, which currently stands at 64.1 percent, the study suggests that the conversion of bank deposits to e-naira may destabilize the banking system.
Launched in October 2021, the e-naira has not gained significant traction among the Nigerian population. With less than one million downloads of the e-naira app recorded a year after its launch, it appears that public interest in the CBDC remains lukewarm.
The CBN, however, continues to promote the e-naira and offer incentives to encourage adoption.
The Advantages of the CBDC and Concerns
The CBN has emphasized that one of the key advantages of the e-naira is its potential to deepen financial inclusion. The introduction of the e-naira USSD code for non-smartphone users has contributed to an increase in e-naira transactions. Additionally, the central bank believes that implementing a CBDC will expand and stabilize banks’ deposit base.
Despite these potential benefits, the CBN report warns that bank deposit conversions to e-naira could destabilize the banking system. The report highlights that since its inception, there has been significant growth in bank deposit conversions, reaching about N1.66 billion ($2.1 million). Moreover, there are concerns about reduced non-interest income for banks and increased cyberattack risks associated with a CBDC.
Hot Take: Assessing the Risks and Rewards of Nigeria’s e-naira CBDC
The CBN’s study on Nigeria’s e-naira CBDC raises important concerns about the potential risks it poses to the country’s financial stability. While the CBDC has the potential to improve financial inclusion rates, the conversion of bank deposits to e-naira may destabilize the banking system. Additionally, reduced non-interest income and increased cyberattack risks are valid concerns.
However, it is crucial to consider the benefits of a CBDC, such as expanding financial inclusion and stabilizing banks’ deposit base. As Nigeria continues its journey towards digitalization and modernization of its financial system, finding a balance between reaping the rewards of a CBDC and mitigating the associated risks will be essential.
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