eNaira could reduce deposits in commercial banks, warns IMF CBN

The International Monetary Fund has stated that the eNaira wallet could function as a deposit at the Central Bank of Nigeria and therefore reduce the demand for deposits in commercial banks.

The comment came just four weeks after President Major General Muhammadu Buhari and senior central bank officials launched eNaira at the State House, Abuja.

Accordingly, the Washington-based fund on Tuesday warned the CBN to manage various risks associated with digital currency, particularly the threats it poses to monetary policy implementation, cybersecurity, among others.

The IMF revealed this in its report “Country Focus; Five observations on the Central Bank of Nigeria digital currency.’

The global body said: “Like digital currencies elsewhere, eNaira carries risks to monetary policy implementation, cybersecurity, operational resilience, financial integrity and stability.

“For example, eNaira wallets can be perceived, or even function effectively, as a deposit at the central bank, which can reduce the demand for deposits in commercial banks. Relying as it does on digital technology, there is a need to manage cybersecurity and operational risks associated with eNaira.

According to the IMF, the launch of the digital currency is attracting interest from the global world and other central banks due to the size and complexity of the Nigerian economy.

The organization added that eNaira uses the same blockchain technology as Bitcoin or Ethereum, but is not a financial asset like the two.

The IMF noted that the e-Naira would increase financial inclusion, facilitate the remittance of remittances and reduce informality.

According to the fund, Nigeria has a large informal economy with transactions and employment equivalent to more than half of GDP and 80% of employment, respectively.

The IMF said: “The IMF’s 2021 Article IV mission highlighted the need to monitor the macro-financial risks and impacts associated with a central bank digital currency. The IMF stands ready to collaborate with the authorities on data analysis, cross-country studies, sharing the eNaira experience with other countries, and discussing the future development of eNaira, including its design, its regulatory framework and other aspects.

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