- Nigeria witnessing increased CBDC adoption nearly 18 months after launching its national CBDC amid an acute cash crisis.
- The value of eNaira transactions has increased to 22 billion nairas ($47.7 million).
Nigeria is witnessing an increased Central Bank Digital Currency [CBDC] adoption nearly 18 months after launching as national fiat reserves face shortage.
The central bank’s decision to replace older notes with larger denominations amid inflation has caused Nigeria’s cash crunch. While developing countries were among the first to recognize the value of a CBDC, the concept is yet to be put into practice in most parts.
The local political climate and other macro-economic conditions are also responsible for the current cash crisis. The naira redesign has certainly made worse the current economic hardship and spiked pressure on the unbanked.
Nigerians have been faced with record-high inflation of 21%, as well as a shortage of the newly redesigned naira.
Demonetization has caused Nigeria’s circulating cash supply to be reduced from 3.2 trillion nairas to 1 trillion nairas. To compensate for this decline, Nigeria minted over 10 billion eNairas.
Furthermore, eNaira payouts in government initiatives and social schemes promote CBDC adoption.
Can CBDCs assist during a cash crunch?
As per a Bloomberg report, it is the lack of physical cash that has forced Nigerians to use the eNaira. In a country where cash accounts for about 90% of deals, the value of eNaira deals has risen by 63% to 22 billion nairas.
The governor of the Central Bank Godwin Emefiele said that the number of CBDC wallets grew more than 12 times compared with October 2022.
Emefiele said:
“The eNaira has emerged as the electronic payment channel of choice for financial inclusion and executing social interventions,”
CBDCs claim to provide a way for developing countries to beat the challenges posed by the fiat economy. According to the Atlantic Council, only 11 countries have established their own CBDCs so far. Nigeria is the largest country with an operating CBDC, with the remaining ones being small island nations in the Caribbean.
