Digital Currency: IMF Calls For Increased Adoption of Payment Method to Avert Cash Shortage 

The International Monetary Fund (IMF) has reiterated the risks involved in Central Bank Digital Currency (CBDC), urging countries to embrace the payment method in monetary transactions.

IMF stated that countries operating digitally of which Nigeria is one may experience cash shortage, difficulty in making payments and multiple hurdles in transactions.

Investors King recalls that the Central Bank of Nigeria, CBN launched Nigeria’s Digital currency called e-naira in October, 2021.

The e-Naira was introduced to promote cross-border trade, accelerate financial inclusion, and lead to cheaper and faster remittance inflow.

According to CBN, the e-naira will enhance macro management and growth, cross-border trade facilitation, financial inclusion, monetary policy effectiveness, improved payment efficiency, revenue tax collection, remittance improvement, and targeted social intervention.

Investors King gathered that some other countries with digital currency include: Ghana (e-cedi), South Africa (digital Rand), Tunisia (eDinar), China (digital yuan), Bahamas (sand dollar), Eastern Caribbean (DCash).

Sweden, Japan, South Korea, Bahamas, Russia amongst others have also launched their digital currencies. 

In December 2021 and January 2022, Nigerian banks faced cash crunch at some of their branches in Lagos, Abuja and Port Harcourt whereby customers were denied access to cash leading to long queues.

The IMF, in its report titled, ‘Behind the Scenes of Central Bank Digital Currency-Emerging Trends, Insights, and Policy Lessons’ averred that there may be difficulty in making payments if cash flow drops. 

It noted that those in remote areas with less investors and private firms experience more of its effects.

In the report, IMF opined that CBDC should be designed with the interest of the general public for continued access to convenient cash payments.

“In countries where cash and check use is high, operational costs are elevated. And in some countries, existing digital payments are also relatively expensive.

“The CBDC is, therefore, a potential policy tool to offer digital forms of payments that are cheaper to operate. The non-profit nature of central banks means that they could potentially offer low-cost payments as a public good, potentially subject to the need to eventually recover costs.

“Some features of cash, including anonymity and the lack of an audit trail, make it attractive for illicit transactions like tax evasion, money laundering, and terrorist financing. CBDC could potentially reduce this problem,” the report read.

IMF added that digital currencies could increase competition in terms of payment, the existing modes of payment or as a platform open to private payment service providers.

The financial institution, however, stated that Nigeria’s e-Naira has the potential for financial inclusion as well as increase diaspora remittances but could pose risks to Nigeria’s financial stability.

It, therefore, charged the apex bank to look into its digital currency to correctly manage it to avert its negative effects on the economy.