The Central Bank of Nigeria (CBN) in a recent press release has debunked claims that the country’s central bank digital currency (CBDC) eNaira poses a threat to the nation’s financial stability.

In a recent study titled "Economics of Digital Currencies: Book of Readings," the central bank highlighted the potential threat posed by the conversion of bank deposits to eNaira, emphasizing its impact on the stability of the banking system.

However, in the press release dated October 9, the central bank claimed that media reports suggesting the eNaira's threat to Nigeria's financial stability lacked understanding of certain aspects mentioned in its recently published document.

Risk and reward

In the study, CBN experts drew attention to the gradual emergence of eNaira adoption, which currently constitutes only a marginal 0.2% share of Nigerian banks' liquidity. However, a rise in the adoption of two-year-old CBDC could affect commercial banks’ liquidity as eNaira wallets can not be used by commercial banks. The potential concern that could arise from this observation is the hypothetical risk of banks experiencing a lack of liquidity in the event of complete eNaira adoption.

On the flip side, according to the study, an increased adoption of the eNaira has the potential to significantly improve Nigeria's financial inclusion rate. The study predicts that the country's current financial inclusion rate of 64.1% in 2021 could be boosted to meet an ambitious target of 95.0% by 2024 through the widespread use of the eNaira.

CBN’s new stance

In the release, the CBN called the media report that the eNaira threatens the nation’s financial stability unconvincing. “In the ordinary course of things, the CBN does not join issues on news commentary, however, we are constrained to clarify the reports to ensure that misunderstandings are not fostered,” a part of the press release read.

The CBN encouraged Nigerians to embrace the eNaira and expressed a commitment to improve the user experience of the CBDC. “The eNaira structure continues to evolve and undergo modifications targeted at improving the user experience across all interfaces. We encourage Nigerians to embrace the technology for, amongst other things, greater financial inclusion,” the press release concluded.

Between October 2022 and March 2023, the number of eNaira wallets has reportedly increased more than 12-fold to 13 million. Between the same time, the value of eNaira transactions surged 63% to 22 billion naira ($47.7 million), according to the immediate past governor of CBN Godwin Emefiele. The CBDC was created to support the CBN’s cashless policy, encourage digital payment, and improve financial inclusion.

Nigeria has been recognized as the world's third fastest-growing crypto economy, according to data from Chainalysis. According to a joint study by ConsenSys and YouGov, 99% of Nigerians have more knowledge about Web3 than those in major economies like the UK, the US, Japan, and Germany. All these data point to a growing familiarity among Nigerians with crypto technology, which they are increasingly incorporating into their daily lives.