Africa’s First CBDC Push Encounters Slow Progress, IMF Says

Public adoption of Nigeria's eNaira turned out to be ‘disappointingly low’

People argue while in line outside a bank in Lagos, Nigeria, on Feb. 22, 2023, ahead of the presidential election scheduled for Feb. 25, 2023. (Patrick Meinhardt/AFP via Getty Images)

The Central Bank of Nigeria’s (CBN) efforts to make citizens adopt the eNaira central bank digital currency (CBDC) and move away from cash have been unsuccessful, according to a report by the International Monetary Fund (IMF).

The eNaira, launched by the CBN on Oct. 25, 2021, was Africa’s first CBDC. In a May 16 IMF report, the organization analyzed the adoption of the eNaira after one year.

“The take-up of the eNaira by households and merchants has been slow,” the report reads. “As indicated by the levels of wallet downloads and transactions, the public adoption of the eNaira thus far has been disappointingly low.”

For any given week, 98.5 percent of eNaira digital wallets weren’t used.

The Nigerian government initially sought to encourage the adoption of the eNaira. In August 2022, the CBN removed access restrictions that allowed people to use the digital currency even without bank accounts. Then, in October 2022, it started offering discounts for people who used eNaira to pay for cab services.

However, as none of these measures were able to make Nigerians shift away from cash, the government took drastic measures. In December 2022, the CBN began restricting cash withdrawals. The limit was set at 100,000 naira ($225) per week for individuals, with businesses being allowed a limit of 500,000 naira ($1,123).

The government then decided to redesign the currency, which led to a cash shortage. Restrictions on cash usage and shortage of money upset Nigerian citizens, with people taking to the streets and protesting against the enforced policies.

The eNaira could have major implications for the world, with various central banks watching how the Nigerian CBDC fares as they prepare to introduce digital currencies in their own nations, investigative journalist Nick Corbishley told EpochTV’s “Crossroads” in December 2022.

If banks have the ability to decide what individuals and businesses can and can’t spend their money on, “it will be unprecedented levels of control over us.” according to Corbishley. That would mean restricting the financial transactions of individuals and businesses to certain spaces and places.

“This is what is called programmable money,” he said, comparing it to a “kind of financial lockdown.”

“It is the loss of anonymity, it is the loss of privacy, and it is ... the consolidation of a centralized power that most of us still can’t even imagine what it would look like.”

eNaira Usage

After an “initial surge” following the launch, eNaira wallet downloads tapered off, according to the IMF. While it only took 25 days for 500,000 wallets to be downloaded, it took 63 days to hit 600,000 downloads, and 143 days for the wallet to reach 700,000 downloads.

By November 2022, only 860,000 wallets were downloaded, equivalent to just 0.8 percent of the country’s active bank accounts.

“Merchant wallet download has reached about 100,000 in end-June, which is about one eleventh of the number of merchants with Point-of-Sales (POS) terminals—which enables credit or debit card payments,” the report reads.

“The average number of eNaira transactions since its inception amounts to about 14,000 per week—only 1.5 percent of the number of wallets out there. This means that 98.5 percent of wallets, for any given week, have not been used even once.”

CBDC Risks

The IMF report also pointed to potential risks involved in using the eNaira CBDC. The central bank digital currency may end up becoming a “safer, cheaper, and faster to move around” alternative to bank deposits.

Even in a “benign scenario,” banks can face lower profitability once CBDCs are introduced, as the digital currency can affect the banks’ core function of acting as a deposit holder. This has a “financial stability implication,” according to the report.

“Moreover, CBDC may increase the risk of a bank run, by acting as a safe haven asset, in times of panic and distress,” it reads.

The organization suggested that the issue may be tackled by lowering the “holding limits” during periods of financial stress and raised when appropriate by the CBN.

The IMF also stated that anti-money laundering/combating the financing of terrorism (AML/CFT) risks of CBDC may “not yet be fully understood.”

“To the extent that the eNaira facilitates a move to a cashless economy, it may alleviate AML/CFT risks. However, its element of anonymity and digital form may also bring new and untested form of risks as have crypto currencies in recent years (e.g., bitcoins requested as a ransom money in recent ransomware attacks),” the report reads.

In January 2022, the U.S. Federal Reserve published a white paper on what a CBDC could look like. It asked for public comments on issues such as the potential risks and benefits a CBDC can have on the country. On April 20, the Fed released the responses in nine documents.

A majority of Americans responded negatively to the idea.

“With this digital currency, the government would be able to usurp freedoms without the knowledge/consent of the public,” a student from Texas said, noting that risks posed by CBDC include the breach of privacy, government overreach, and hacking.

“The best e-hackers and cybersecurity personnel don’t work for the government. They work in the private sector. It is naive to think, given the government’s track record, that it could ever be trusted to secure such an asset.”

A CBDC might also trigger a “run on financial institutions,” according to the student.

“Our economy must remain a function of the constitutional mandate created by the founders,“ Rodger Reed from California said. ”By design, a CBDC does not serve the American people the way sound money does.”

When the Fed asked, “What additional potential benefits, policy considerations, or risks of a CBDC may exist that have not been raised in this paper?” Charles Dowling from Colorado said, “The people who are aware of reality do not respect the government whatsoever. And would probably not use your CBDC.

“And no one wants an illegal, unconstitutional government poking into their business.”

An analysis by the Cato Institute warned that CBDCs pose a foundational threat to America’s economic systems. A U.S. CBDC will eventually “usurp” the private sector and endanger the core freedoms of U.S. citizens, it said.

As such, CBDCs should have “no place” in the U.S. economy, the institute stated. It called on Congress to “explicitly prohibit” the Department of Treasury and the Federal Reserve from issuing CBDCs in any form.