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The International Monetary Fund (IMF) acknowledges that the recently launched Nigeria Central Bank Digital Currency (CBDC) is attracting the interest of many institutions around the world, including central banks. Nevertheless, the fund warned that CBDC is at risk in terms of monetary policy implementation, cyber security, operational flexibility, and financial integrity and stability.
CBDC attracts interest
In its latest national focus report The IMF was written by economist Jack Ree and explained why Nigeria’s new CBDC has aroused great interest from the outside world, especially the central bank. In the report, the author pointed out that unlike cryptocurrencies such as Bitcoin or Ethereum, e-naira has strict access control by the central bank. In addition, unlike unstable cryptocurrencies, CBDC derives value from the physical naira.
According to the International Monetary Fund, it is through these characteristics that the Central Bank of Nigeria (CBN) hopes that its CBDC can bring multiple benefits to the Nigerian economy. Some of the expected benefits include increased financial inclusion and reduced informality.
The gospel of CBDC remittance
The report also explains why CBN hopes that CBDC will increase remittances into the country. The report states:
Remittances are usually made through international money transfer operators (such as Western Union), and the fees are 1% to 5% of the transaction value. e-naira is expected to reduce the cost of remittances and make it easier for Nigerian expatriates to send funds to Nigeria by obtaining eNaira from international remittance operators and transferring it to Nigerian beneficiaries through wallet-to-wallet transfers.
However, the same International Monetary Fund report reiterated a common view that CBDC deposits may actually act as central bank deposits and reduce the demand for commercial bank deposits. The report also warned of other risks associated with CBDC. “Relying on digital technology, the cyber security and operational risks associated with eNaira need to be managed,” the author wrote.
In short, the report stated that the IMF that participated in the e-naira launch process can still provide technical assistance and policy advice to CBN.
Do you agree with the comments of the International Monetary Fund on Nigeria CBDC? Tell us what you think in the comments section below.
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