IMF Managing Director Cautions About Unforeseeable Consequences of Retail CBDCs
The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has expressed her concern about the potential consequences of retail central bank digital currencies (CBDCs).
Speaking at the Milken Institute’s 2023 Global Conference on May 1st, Georgieva cautioned that retail CBDCs have far more room for error than wholesale CBDCs.
She explained that wholesale CBDCs, which are designed to allow financial institutions to carry reserve deposits with a central bank, can be put in place with fairly little space for undesirable surprises.
However, retail CBDCs, which are state-backed virtual currencies issued by central banks for use by consumers and businesses, completely transform the financial system in a way that we don’t quite know what consequences it could bring.
According to a report by Cointelegraph, the IMF is collaborating with around 50 countries to ensure best practices are adopted for CBDCs, which Georgieva expects will have a huge influence on banks and economies in the future.
The caution from the IMF comes as Nigeria became one of the first countries in the world to launch a public CBDC, called the eNaira, on October 25, 2021.
The Central Bank of Nigeria (CBN) defines the eNaira as a digital currency denominated in Naira that serves as a medium of exchange and a store of value.
During the launch, the Governor of the Central Bank of Nigeria, Godwin Emefiele, stated that the eNaira was presented after four years of research by the apex bank.
The CBN governor claimed that 33 banks were successfully integrated into the eNaira network, with the apex bank minting N500m for the currency’s inauguration.
As of December 2021, the eNaira consumer wallet had over 583,000 downloads, while the merchant wallet had 83,000 downloads from over 160 countries. On Tuesday, the CBN governor disclosed that e-Naira transactions hit about N1.4m as of March 31, 2023.
The launch of eNaira and the increasing interest from other countries in developing their own CBDCs have raised concerns about the potential risks and consequences of such currencies.
The IMF’s caution highlights the need for caution and careful consideration in the development and implementation of CBDCs to mitigate any negative impacts they may have on the global financial system.
Nigerians Turned to eNaira For Transactions as Naira Scarcity Persists
Recent reports reveal that Nigerians increasingly turned to the nation’s digital currency eNaira as transaction value jumped a whopping 63% to N22 billion ($48 million) amid the ongoing cash crunch bedeviling the country.
The number of eNaira wallets is reported to have jumped more than 12-fold to 13 million since October last year.
Speaking on the recent surge in the adoption of the eNaira, Nigeria’s Central Bank Governor Godwin Emefiele said the eNaira has emerged as the electronic payment choice for financial inclusion and executing social interventions.
He further noted that the Naira circulation in the country had dropped to around 1 trillion Naira from 3.2 trillion Naira in September 2022. Hence, to bridge this deficit, he disclosed that more than 10 billion Naira of the CBN’s digital currency has been minted so far, and about 3.4 billion Naira is in circulation.
The increased rate of the eNaira adoption in Nigeria doesn’t come as a surprise owing to the fact that Nigerians have been struggling with a crippling cash shortage since the CBN policy to redesign the higher denominations (N200, N500, N1,000) of the naira notes.
Currency in circulation slumped to about 1 trillion naira from N3.28 trillion in December 2022 to N1.38 trillion in January and an estimated N982.09 billion in February 2023 representing a 235 percent decline. The shortage of cash has left many individuals in the country of about 218 million struggling to pay for basic needs. Investors King understands that Nigeria which has a $220 billion informal economy, thrives on cash transaction.
Recall that the eNaira was launched by the Central Bank of Nigeria in October 2021, which saw Nigeria become the first country in Africa to launch its digital currency. The CBN disclosed that the eNaira was introduced to increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.
The launch of the CBN digital currency however came as a surprise to a lot of Nigerians, as the CBN has been suspicious of cryptocurrencies, such as Bitcoin, after it issued a directive that prohibited banks from taking part in financial transactions involving cryptocurrencies, which many Nigerians often use as a hedge against naira depreciation.
At the initial launch of the eNaira, it was faced with widespread rejection and less usage from Nigerians. A year after the launch of the eNaira, less than 0.5% of Nigerians were using it. In a bid to encourage the digital currency adoption at the grassroots level, the CBN offered Keke NAPEP (tricycle taxis) and their customers a 5% discount for using the CBDC as means of payment.
In November 2022 one year after the eNaira launch, the CBN celebrated 700,000 completed eNaira transactions valued at ₦8 billion ($17.4 million). If the shortage of cash persists in the country, it is not far-fetched to say that the eNaira transaction rate would record another significant increase.
Naira Scarcity: CBN Introduces USSD Code For eNaira to Ease Transactions
The Central Bank of Nigeria, CBN on Thursday, introduced a USSD code for its digital currency, eNaira amidst naira scarcity.
Investors King reports that the USSD code given as *997*50# for the eNaira will be active and used on Bullnet platform.
Launching the USSD system in Lagos, the Chief Executive Officer, Bullnet Bulletin and Enquiries Networking Services, Bayo Akintoye stated that the new initiative will solve the cash crunch issue.
According to Akintoye, the introduction of the USSD code for eNaira will ease the suffering of the citizens until the country fully actualises its laid down cashless policy and economy.
He noted that the system will be helpful to those without bank accounts as they would only require their phone numbers to register and enjoy the services.
The CEO enjoined Nigerians to embrace the USSD eNaira system while stressing its benefits and easy usage for transactions.
“The CBN has collaborated with Chamsmobile Limited (a CBN licensed Mobile Money Operator and Super-Agent) to address challenges faced primarily by the unbanked, the underserved and those on the other side of the digital divide by developing the service known as ‘eNairaeNhanced Services’ via the eNaira USSD channel (*997*50#) which is fully run and powered by the patented Bullnet Platform.
“It is expected that Nigerians will proudly associate with this innovation and register to have the eNaira wallet. These wallets can be funded directly with cash-purchased vouchers (like the GSM recharge cards) or from funded bank accounts using bank cards via the web portal or using electronic payment with any authorized agent.
“Users can also transfer eNaira from one wallet to another simply by inputting the recipient’s phone number. The service also makes it possible for users to cash out by sending the eNaira directly from their wallets to an ATM and withdrawing the cash equivalent without the need for a bank account or bank card. The user can also send eNaira to a designated bank account for savings or further transactions,” Akintoye explained.
Also speaking, the Project Coordinator, eNaira Project Giant Team, Otaru Abdulkadir, who represented the Coordinator of eNaira, CBN explained that the eNaira, if well utilised will enhance financial inclusion across all states, improve cross border transactions, international transactions and boost the economy.
Investors King recalls that the eNaira was launched in October, 2021 as part of CBN’s measure to implement its cashless policy and move from a cash-based economy.
E-Naira Transaction Volume Rises to N5 Billion in November Amid Intensified Campaign
More Nigerians embrace eNaira wallet as CBN takes adoption campaign across the nation
The Central Bank of Nigeria, (CBN) has disclosed that e-Naira transaction volume rose to a record N5 billion in the month of November following a series of campaigns initiated to encourage adoption.
Investors King had earlier reported how the e-Naira adoption team visited a number of parks in Abuja and the University of Lagos among other locations to drive the adoption of the digital currency.
Speaking at the Second Edition of the Africa Cashless Payment Conference, CBN’s Director of Information and Technology, Hajiya Rakiya Mohammed noted that transaction on the e-naira platform does not attract any charges.
She stated that Nigeria’s financial ecosystem is large to accommodate everyone.
Hajia Rakiya added that the e-Naira platform can be operated in any of Nigeria’s major local languages, stating that onboarding onto the e-Naira platform is a simple process.
She further stressed that the primary goal of the e-naira is to reduce the amount of cash in circulation, thereby downsizing the cost of producing paper currency, increase in revenue and direct disbursement to citizens.
Meanwhile, the e-Naira circulation has reached N401.82 million as more Nigerians embraced the digital currency.
It could be recalled that on October 25, 2021, CBN launched the e-Naira making Nigeria the first African country to have a digital currency.
During the unveiling of the e-Naira in Abuja, President Muhammadu Buhari stated that the digital naira would increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.
On his part, the CBN Governor, Godwin Emefiele disclosed that the e-Naira offered Nigerians endless possibilities in using financial services.
While admonishing more Nigerians to embrace the digital naira, Hajia Rakiya noted that “both banked and unbanked can use it, and it can be done through USSD *997#. We have integrated it with telecoms and NIBBS instant payments plus integration with money transfer operations so you can use e-naira for cross border”.
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