Five Observations on Nigeria’s Central Bank’s Digital Currency


Nigeria’s central bank’s new digital currency, eNaira, is expected to increase financial inclusion and facilitate remittances, but the potential risks will need to be managed. (Photo: André M. Chang / ZUMAPRESS / Newscom)

Five Observations on Nigeria’s Central Bank’s Digital Currency

By Jack Ree
IMF Africa Department

November 16, 2021

The Central Bank of Nigeria (CBN) officially launched “eNaira” – a central bank digital currency (CBDC) – on October 25, 2021. It is the second CBDC fully open to the public after the Bahamas.

Other countries and regions, such as China and the Eastern Caribbean Monetary Union, have piloted CBDCs with a subset of their citizens. Given the size and complexity of the Nigerian economy, this launch is attracting considerable interest from the outside world, including central banks.

What is eNaira?

Like coins or cash, the eNaira is a responsibility of the CBN. The eNaira uses the same blockchain technology as Bitcoin or Ethereum and, like them, the eNaira is stored in digital wallets and can be used for payment transactions; and it can be transferred digitally and virtually free of charge to anyone in the world with an eNaira wallet. There are, however, some important differences. First, eNaira has strict right-of-access controls by the central bank. Second, unlike these crypto-assets, eNaira is not a financial asset per se but a digital form of a national currency and derives its value from the physical naira, to which it is pegged at par.

Why did Nigeria introduce eNaira?

According to the CBN, eNaira is expected to bring multiple benefits, which are expected to materialize gradually as eNaira becomes mainstream and is supported by a robust regulatory system. The main advantages are as follows:

  • Increased financial inclusion.
    For now, the eNaira wallet is only provided to people with bank accounts, but its coverage should eventually extend to anyone with a cell phone, even if they don’t have a bank account. A large number of people do not have a bank account (38 million people; 36 percent of the adult population), and allowing those of them with a cell phone to have access to eNaira would increase the financial inclusion and facilitate more direct and efficient implementation of social transfer programs. The move is expected to allow up to 90 percent of the population to use eNaira.
  • Facilitation of remittances.
    Nigeria is among the top remittance destinations in sub-Saharan Africa, with remittances reaching $ 24 billion in 2019. Remittances are typically made through international money transfer operators. ‘money (eg Western Union) with charges ranging from 1% to 5% of the value. of the operation. ENaira is expected to reduce remittance costs, which will make it easier for the Nigerian diaspora to send funds to Nigeria by obtaining eNaira from international money transfer operators and transferring them to recipients in Nigeria through free wallet-to-wallet transfers. Exchange rate reforms, including a unified market equilibrium rate, that narrow the gap between official exchange rates and parallel market exchange rates would strengthen the incentives to use eNaira wallets to send funds.
  • Reduction of informality.
    Nigeria has a large informal economy, with transactions and jobs equivalent to more than half of GDP and 80 percent of employment, respectively. ENaira is account-based and transactions are in principle fully traceable, unlike token-based crypto asset transactions. Once eNaira is more widespread and integrated into the economy, it can bring greater transparency to informal payments and strengthen the tax base. Informal and formal businesses can also benefit if the adoption of eNaira improves consumption through greater financial inclusion.

What are the potential risks?

Like digital currencies elsewhere, eNaira carries risks for the implementation of monetary policy, cybersecurity, operational resilience, and 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. Leveraging digital, there is a need to manage cybersecurity and operational risks associated with eNaira.


What are authorities doing to mitigate potential risks?

The authorities have taken steps to manage the risks. The transfer of funds from bank deposits to eNaira wallets is subject to daily transactions and balance limits in order to mitigate the risks of diminishing role of banks and other financial institutions. Financial integrity risks, such as those arising from the potential use of eNaira for money laundering purposes, are mitigated by using a tiered identity verification system and enforcing stricter controls to relatively less verified users. For example, for now, only people with a bank verification number can open a wallet, but over time coverage will expand to people with registered SIM cards and those with cell phones but no number. identification. These latter categories of holders would be subject to more stringent transactions and balance limits. Even so, wallet holders that meet the strictest identity verification standards cannot hold more than 5 million Naira (approximately $ 12,200) each in their eNaira wallets. To deal with cybersecurity risk, regular IT security assessments should be conducted.

What can the IMF do?

The IMF remains available to provide technical assistance and policy advice. The IMF’s Monetary and Capital Markets Department participated in the eNaira deployment process, including providing product design reviews. The IMF’s 2021 Article IV mission underscored the need to monitor the macro-financial risks and impacts associated with a central bank digital currency.


The IMF stands ready to work with the authorities on data analysis, cross-country studies, sharing the eNaira experience with other countries and discussing the future evolution of eNaira, including its design, its regulatory framework and other aspects.

Jack ree is an economist in the African Department of the IMF


The press release for the conclusion of the 2021 Nigeria Article IV consultation is expected to be released in mid-November 2021.


About Ruben V. Albin

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