• Nigeria is experiencing an increase in Central Bank Digital Currency (CBDC) adoption, nearly 18 months after its launch.
• The value of eNaira transactions has risen to 22 billion nairas ($47.7 million).
• The local political climate and other macro-economic conditions are responsible for the current cash crunch in Nigeria.
Cash Crunch In Nigeria
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 a cash crunch in the country. Developing countries were among the first to recognize the value of a CBDC, but most have yet to put it into practice. Local political climate and other macro-economic conditions are also responsible for the current cash crisis. Demonetization has caused Nigeria’s circulating cash supply to be reduced from 3.2 trillion nairas to 1 trillion nairas, while record-high inflation of 21% exacerbates the situation.
eNaira Payouts
To compensate for this decline, Nigeria minted over 10 billion eNairas and began issuing payouts in government initiatives and social schemes which support CBDC adoption. The value of eNaira deals has risen by 63% to 22 billion nairas due to lack of physical cash forcing Nigerians to use digital currency instead. According to Governor Godwin Emefiele, the number of CBDC wallets grew more than 12 times compared with October 2022 figures. He said: „The eNaira has emerged as the electronic payment channel of choice for financial inclusion and executing social interventions.“
Advantages Of CBDCs
CBDCs provide a way for developing countries such as Nigeria to beat challenges posed by fiat economy, although only 11 countries have established their own so far, making Nigeria the largest one with an operating CBDC system. With 90% of deals being made through cash transactions, CBDCs provide much needed relief during periods when access to physical currency is limited or restricted due to economic hardships or demonetizations such as those faced by Nigerians recently.
Transparency And Control
As digital forms of money become more accessible and secure, they offer greater transparency and control over funds which can help governments better manage their financial systems especially in times like these where traditional banking infrastructure fails due to limited access or liquidity constraints faced by citizens during severe economic downturns or pandemics like COVID-19 .
