eNaira: IMF Warns CBN Of Financial Risks

The International Monetary Fund(IMF) has warned the Nigerian Apex Bank, the Central Bank of Nigeria on the inherent financial dangers associated with the Country's recently launched digital currency, the eNaira. 

The IMF in a release on Tuesday titled ‘Country Focus; Five Observations on Nigeria’s Central Bank Digital Currency', the international financial organization warned that the eNaira wallet may function as a deposit at the Central Bank of Nigeria thereby reducing the demand for deposits in commercial banks.

The Fund in the statement pointed out some risks associated with the currency which includes but not limited to the threats it poses to monetary policy implementation, cyber security and financial integrity.

“Like digital currencies elsewhere, the eNaira carries risks for monetary policy implementation, cyber security, operational resilience, and financial integrity and stability.

“For example, eNaira wallets may be perceived, or even effectively function, as a deposit at the central bank, which may reduce demand for deposits in commercial banks. Relying as it does on digital technology, there is a need to manage cyber security and operational risks associated with the eNaira", It said.

IMF further noted that the eNaira, launched barely four weeks ago has been a great point of interest for the international community owing to the size of Nigeria’s economy, adding that the currency although uses the same blockchain technology as Bitcoin and etherum but is  not a financial asset.

The global monetary body while highlighting some positive sides of the eNaira which includes increasing financial inclusion, facilitating remission of remittances, and reducing informality, it however stressed that it is imperative to watch the risks and macro-financial impacts associated with the digital currency. 

"The eNaira is expected to lower remittance transfer costs, making it easier for the Nigerian diaspora to remit funds to Nigeria by obtaining eNaira from international money transfer operators and transferring them to recipients in Nigeria by wallet-to-wallet transfers free of charge. 

“Exchange rate reforms, including a unified market-clearing rate, that reduce the gap between official and parallel market exchange rates would enhance the incentives for using eNaira wallets to send remittances.”

“The 2021 IMF Article IV mission emphasised the need for monitoring risks and macro-financial impacts associated with a central bank digital currency. 

"The IMF is ready to collaborate with the authorities on data analysis, cross-country studies, sharing the eNaira experience with other countries, and discussing further evolution of the eNaira including its design, regulatory framework, and other aspects.”, IMF stated.