eNaira’s First Year: Adoption Challenges, Competition with MMOs, and Remittance Solutions

Sunset over bustling Nigerian market, central bank digital currency symbol, eNaira wallets & mobile money operators, diverse users exchanging eNaira, remittance solutions in background, warm color palette, cooperation and competitiveness, sense of optimistic challenge.

Nigeria’s eNaira, the central bank digital currency (CBDC) that was launched in October 2021, recently marked its first anniversary. In response, the International Monetary Fund (IMF) released a working paper examining its year-long performance. While the IMF praised eNaira’s debut as the world’s second CBDC, following the Bahamian Sand Dollar, it also pinpointed areas for improvement.

The eNaira’s retail side demonstrated no issues concerning latency due to limited adoption by initial users. However, the Central Bank of Nigeria’s (CBN) phased introduction delayed the CBDC’s primary goals, which were extending financial inclusion to the unbanked and facilitating remittances, according to IMF officials.

Currently, around 1.5% of eNaira wallets are active weekly, with only 802,000 transactions completed throughout the evaluation period. These numbers reveal that less than 1% of Nigerian bank account holders have eNaira wallets. The IMF maintains that a combination of innovative tactics and luck is needed to break out of low adoption rates, just as with any network product, like credit cards.

With mobile money operators (MMOs) having a substantial presence in Nigeria, the eNaira’s connection to the MMO network is crucial. The CBDC has the potential to compete with MMOs on the retail market or serve as a bridge between them. Although the IMF believes it is difficult to envision the eNaira replacing all MMO services, establishing a bridge function could result in a complex industry reshuffle.

As a single-currency system, the eNaira is unable to accommodate remittances directly. To overcome this hurdle, the IMF suggested that international money transfer operators (IMTOs) could be allowed to receive eNaira wallets or utilize intermediation. While both solutions could prove costly, overlooking them could lead to the growth of an underground market that serves a similar purpose.

To stimulate eNaira adoption, the IMF offered recommendations like using it for social payments in partnership with MMOs, which would refine the social cash transfer system and attract users. Additionally, merchants might be encouraged to accept eNaira payments. Although CBN’s efforts in enhancing inclusivity through eNaira are acknowledged, addressing the remittance issue is still vital.

In conclusion, while Nigeria’s eNaira CBDC displays promise as the world’s second digital sovereign currency, the IMF’s working paper underscores the need to promote adoption and expand its reach beyond early users. To achieve this, embracing innovative strategies and leveraging existing market networks are essential for this digital currency to flourish and fulfill its ultimate goals.

Source: Cointelegraph

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