The central bank's digital currency, the e-naira, nonetheless poses a threat to financial stability notwithstanding its contribution to closing the financial inclusion gap. The central bank said that the CBDC will "widen the size and stability of banks' deposit base" in addition to increasing the rate of financial inclusion.
Financial Inclusion Rates in Nigeria
The nearly two-year-old e-naira central bank digital currency (CBDC) of the nation poses a risk to financial stability, according to a recent research by the Central Bank of Nigeria (CBN). This is true even though a digital currency like this one might potentially aid in raising Nigeria's "financial inclusion rate from the 64.1 percent recorded in 2021 to the 95.0 percent target for 2024."
The e-naira, which was introduced in late October 2021 and supported by former CBN governor Godwin Emefiele, has not been well embraced by Nigerians. Less than one million people downloaded the e-naira app, as was originally reported by Bitcoin.com News in August 2022, about a year after the CBDC was introduced.
The amount of downloads compared to Nigeria's 130 million+ adults may be a sign of the public's less than enthusiastic reaction to the CBDC's inauguration, according to many commentators. Although it appears that the e-naira has been shunned by the Nigerian populace, the CBN has continued to promote it and provide incentives to potential users.
Stabilizing the Deposit Base of the Banks
One of the main benefits the CBN has consistently emphasized when making the case for the CBDC is the broadening of financial inclusion. The CBN also highlights how the introduction of the e-naira USSD code for non-smartphone users has contributed to an increase in the volume of e-naira transactions in its paper titled "Economics of Digital Currencies." The central bank said that the CBDC will "widen the size and stability of banks' deposit base" in addition to increasing the rate of financial inclusion.
The CBN warns in the study that the conversion of bank deposits to e-naira may endanger the stability of the banking system notwithstanding these and other advantages that a CBDC is anticipated to provide. The paper uses the quantity of bank deposit conversions since the CBDC's implementation to support this claim.
Since the program's launch, bank deposits converted to e-naira have grown by an average of 78.3 percent every month, reaching a total of nearly N1.66 billion ($2.1 million). Additionally, the amount of electronic naira in circulation as a percentage of the typical banking system's liquidity has averaged 0.1 percent, with highs of 0.2 percent in the months of May and August 2022, according to the CBN study.
The e-naira, according to the central bank, might also have a detrimental impact on banks' general profitability by lowering non-interest income. According to the CBN research, a CBDC also carries higher chances of a cyberattack.
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