IMF says Nigerian CBDC draws global interest, warns of associated risks – Fintech

The International Monetary Fund (IMF) has acknowledged that the recently launched Central Bank of Nigeria Digital Currency (CBDC) is attracting the interest of many institutions worldwide, including central banks. However, the fund warns that CBDC poses risks to monetary policy implementation, cybersecurity, operational resilience, and financial integrity and stability.

CBDC is generating interest

In the latest country focus Test report Authored by economist Jack Ree, IMF explains why Nigeria's new CBDC has attracted a lot of interest from the outside world, particularly central banks. In the report, the author notes that unlike cryptocurrencies such as Bitcoin or Ethereum, the e-Naira has strict central bank access rights controls. Unlike volatile cryptocurrencies, the CBDC also derives its value from the physical naira.

According to the IMF, the Central Bank of Nigeria (CBN) hopes its CBDC will bring multiple benefits to the Nigerian economy. Planned benefits include greater financial inclusion and reduction in informality.

CBDC boon for remittances

The report also explains why the CBN hopes the CBDC will boost remittances into the country. The report states:

Transfers are usually made through international money transfer providers (e.g. Western Union) with fees between 1 and 5 percent of the transaction value. The e-Naira is expected to reduce remittance costs and make it easier for the Nigerian diaspora to remit funds to Nigeria by receiving eNaira from international money transfer providers and transferring them wallet-to-wallet to recipients in Nigeria free of charge.

However, the same IMF report reinforces the common view that CBDC deposits could actually act as deposits at the central bank and reduce the demand for deposits at commercial banks. The report also warns of other risks associated with the CBDC. “As it relies on digital technology, the cybersecurity and operational risks associated with eNaira need to be managed,” the author writes.

In summary, the report said the IMF, which was involved in the launch of e-naira, continues to provide technical assistance and policy advice to the CBN.

Do you agree with the IMF’s comments on the Nigerian CBDC? Tell us what you think in the comments section below.

Photo credits: Shutterstock, Pixabay, Wiki Commons