Almost two years after introduction, CBN’s Digital Currency fails to fly

  • Level of adoption disappointingly low, says IMF


Uba Group

When the Central Bank of Nigeria in October 2021 launched the Central Bank Digital Currency, the eNaira, the country did not only become the second in the world—only after the Bahamas to launch a fully public CBDC, but was also the first Sub-Saharan Africa to do so.

The CBN among other facts said it anchored the initiative on driving growth in financial inclusion, facilitation of remittances and to reduce informality in financial transactions.

However, almost two years after the launch, the eNaira seems to have failed to gather enough momentum to fly.

A review of the project conducted by the International Monetary Fund which was published as a working paper, recently, showed that the take-up of digital currency by households and merchants is slow.

The IMF described the adoption of the eNaira as disappointingly low, based on the levels of wallet downloads and transactions.

Supporting its claims with data, the Bretton Woods institution said: “The retail wallet downloads saw a few weeks of initial surge before tapering off. More specifically, it only took 25 days for the number of downloaded wallets to reach 500,000 units—but going from there to 600,000 units took another 63 days; and to 700,000 units yet another 143 days. As of end-November 2021, the total number of retail eNaira wallets amounted to about 860,000. This is just 0.8 percent of Nigeria’s active bank accounts. Merchant wallet download has reached about 100,000 in end-June, which is about one eleventh of the number of merchants with Point-of-Sales (POS) terminals—which enables credit or debit card payments.”

About the transaction volume carried out on eNaira so far, IMF revealed that most wallets appear to remain inactive except for a limited window of weeks of activity surge.

“The IMF described the adoption of the eNaira as disappointingly low, based on the levels of wallet downloads and transactions”

The report noted that the average number of eNaira transactions since its inception amounts to about 14,000 per week which represents only about 1.5 percent of the number of wallets out there. This means that 98.5 percent of wallets, for any given week, have not been used even once.

“The average value of eNaira transactions has been N923 million per week or 0.0018 percent of the average amount of M3 (aggregate money supply) during this period. The average value per transaction has been N60, 000,” IMF disclosed.

While assessing the project under its first year of operation, the suspended CBN Governor, Godwin Emefiele, said the eNaira is expected to be accessible to all Nigerians and would provide more possibilities to bring in the unbanked into the digital economy.

Dishing out his own figures at an event to flag-off the second phase of the eNaira project, Emefiele claimed that since the launch of the initiative, the eNaira had reached 840,000 downloads, with about 270,000 active wallets comprising over 252,000 consumer wallets and 17,000 merchant wallets.

In addition, he said the volume and value of transactions on the platform had been remarkable, reaching above 200,000 and N4.4billion.

The question however is what is responsible for the sluggish growth of the eNaira in a country of over 200 million people dominated by a youthful population that is savvy in electronic transactions?

The IMF report hinted that the slowness in eNaira take-up is not an unexpected outcome given CBN’s choice of a ‘phased approach,’ stressing that initially granting access only to customers with bank accounts and restricting eNaira transactions to onshore uses are major contributing factors to its slow adoption.

Thus, the eNaira has, until recently, not presented tangible benefits to most of its wallet holders—given limited acceptance (e.g., low level of adoption by merchants and other retail customers) and availability (for these customers) of alternative means of payment (e.g., debit card, mobile banking apps)—which are more readily accepted.

“In fact, the total number of eNaira transactions since the inception (around 802,000) is less than the number of eNaira wallets—implying that bulk of the current wallet holders have not used their wallets more than once after opening their wallets.”

The IMF explained that even though the eNaira is a legal tender—its universal acceptance cannot be imposed on the public. And this makes the eNaira a network externality product—whose value increases with the size of the network. Like any network products with similar traits (e.g., credit card), breaking the initial low adoption equilibrium requires a mix of clever strategies and luck.” eNaira would also need to compete with the far-more established incumbent networks (e.g., mobile money)—which provides broadly the same service at the retail level.”


But, perhaps, the strongest challenge facing the growth of the initiative is what the IMF report termed weakness in public trust.
“Weakness in public’s trust on Nigeria’s monetary system and the eNaira’s technological reliability is another important barrier that needs to be tackled,” it stated.

Experts’ opinion

Speaking to the trust deficit issue, a crypto expert, Joe Nwachuku, said the CBN should not expect Nigerians to trust the project with the control of its block chain related currency after the ban on their crypto-linked bank accounts as well as crypto-currency related transactions.

“The ban on crypto-linked accounts after the 2020 #ENDSARS campaign, the perceived manipulations of the foreign exchange (Forex) market, and the Naira redesign saga are some of the reasons why the youth remain skeptical of the eNaira,” he said.

“I cannot put my money under the full watch of the CBN that is controlled by the government in power, not after what they did to us in 2020 and the recent development during the Naira redesign not to talk of the forex market manipulation.

“In other places where these things work perfectly, the Central Banks are independent entities. In Nigeria, public institutions whether they are named independent or otherwise remain under the firm control of the executive who appoints the managers. So, how do you expect people to take their policy initiatives seriously when it concerns the control of your money seriously?” he queried.

Nwachukwu does not see how the eNaira initiative is going to fly in the near future in a society where corruption is prevalent.

Further expressing pessimism about the project, he said: “You know the adaptation of CBDC would curb financial corruption of all kinds. I guess you understand that eNaira uses an account-based block chain technology, which makes transactions traceable to identified individuals or businesses if needed. Do you think we are ready for such transparency in Nigeria for now? I doubt it. To be sincere, I think the initiative was another attempt to trap the youths so they can impound their money in case of eventuality. The #ENDSARS experience keeps playing in my mind anytime I hear someone talk about the eNaira project,” he said.

Moses Awe, an Abuja- based digital financial expert, described the eNaira project as “a project designed to fail from the inception. It is an exercise in futility.”

“First, do we have the infrastructure to run block chain technology efficiently for now? Look at what happened early this year with the Naira redesign. Because we (the appropriate authorities) were not prepared for it, we had massive system failure. Those who choose to adopt the use of electronic transactions had challenges.”

Apart from infrastructure deficit, Awe said, the CBN itself has not shown seriousness in the implementation of the policy. It is more of a political hype than something they desire to implement.

“Ask CBN how many of its staff have eNaira wallets? If they have, how do they pay their contractors, do they use the platform? he queried.

Speaking on how to improve on the efficiency and acceptability of the eNaira, Ayo Olubayo, said the government needed to do more sensitization of citizens on the use of the currency. He suggested that the government can pave the way by making use of the platform in the payment of petrol subsidy palliatives and other welfare programmes.

“Government should shift payment of social welfare programmes like the proposed petrol subsidy palliatives and the National Youth Service Corp payment to eNaira to start with. Payment through the platform is cheap, efficient and accountable.

“This will not only reduce the cost of disbursement of the fund, but will make the process transparent, accountable, devoid of corruption and acceptable to all,” he said.

Going forward

In the face of the challenges, what is CBN doing to move the eNaira project ahead?

It is evident that the eNaira project is still a work in progress and remains in an early stage. Hence, it would be too early to make a judgment on whether adopting retail CBDC in Nigeria under Africa’s challenging economic and financial contexts was a good idea, and if indeed the country was prepared for it.

However, as pointed out by the IMF report, “the experience of the first year suggests that it is technically do-able at least for those SSA countries with relatively strong operational capacities. It also suggests that operationalizing CBDC’s enabling potential may require a robust strategy—which goes beyond a narrow focus on CBDC itself. The selection of a good external technology provider with strong experience is also essential.”

Interestingly, the CBN seems to have digested the takeaways from the initial phase, and has moved to phase 2 of the projects. This involves expanding the eNaira coverage to people without bank accounts (but with mobile phones and KYC) and those without internet access (through USSD technology).

According to the CBN, “People without bank accounts may open an eNaira wallet by providing their national ID number (NIN), and load eNaira balance through cash-in services provided by the agency banking network, moving mobile money, or receiving the eNaira from a third party.”

CBN said it has intensified the eNaira public adoption campaign, by actively promoting its usage by encouraging major supermarkets and hotels to participate in its merchant network; providing stipend to CBN staff through the eNaira, and hosting developer Hackathons for promotion and discovery of eNaira use cases.

Similarly, the expansion of the usage of the eNaira for remittances is now being given a priority. For instance, last week, when the CBN announced a new payout option for receipt of proceeds of diaspora remittance, the eNaira was included as one of the options adopted for the implementation.

“The ban on crypto-linked accounts after the 2020 #ENDSARS campaign, the perceived manipulations of the foreign exchange (Forex) market, and the Naira redesign saga are some of the reasons why the youth remain skeptical of the eNaira”

In addition, deposit money banks seem to have gradually come to accept the eNaira as some of them have started advertising it and advising their customers to download the app, while the CBN appears to be taking the campaign to institutions of higher learning to get students’ buy-in.

Financial experts are of the opinion that integration between the eNaira and mobile money wallets would enhance the store of value function of the mobile money. They argue that while money stored in mobile money accounts is subject to credit risk, which can be, at times, more severe than those of bank deposits.

Integrating the eNaira into mobile money will allow users to keep using their preferred point of contact for their cash in-cash out needs while adding a risk-free option (i.e., eNaira) for safekeeping money.

Despite the sluggish growth of the eNaira and other challenges, the CBN deserves commendation for blazing the trail with the launch of the project.

While it is indeed an act of responding to the yearnings of a fast spreading digital payment system, CBN’s claim that CBDC is the way the world is going.

According to the Atlantic Council, a geo-economics center, “130 countries, representing 98 percent of global GDP, are exploring a CBDC.

In May 2020, only 35 countries were considering a CBDC. A new high of 64 countries are in an advanced phase of exploration (development, pilot, or launch). 19 of the G20 countries are now in the advanced stage of CBDC development. Of those, 9 countries are already in pilot. Nearly every G20 country has made significant progress and invested new resources in these projects over the past six months. 11 countries have fully launched a digital currency. China’s pilot, which currently reaches 260 million people, is being tested in over 200 scenarios, some of which include public transit, stimulus payments and e-commerce.

The European Central Bank is on track to begin its pilot for the digital euro. Over 20 other countries will take steps towards piloting their CBDCs in 2023. Australia, Thailand and Russia intend to continue pilot testing. India and Brazil plan to launch in 2024.

As the CBN prepares to celebrate the second anniversary of the eNaira by October, expectations are high for a remarkable improvement in the government’s efforts towards the use of the platform to encourage transparency in financial transactions.