eNaira: How CBN, Others Should Manage Digital Currency-IMF

The International Monetary Fund (IMF) has advised central banks to manage their digital currency in a manner that promotes financial inclusion.

The IMF gave the advice in a document titled, ‘Central Bank Digital Currency—Initial Consideration,’ seen by THE WHISTLER.

The Washington-based institution said if CBDCs are designed, implemented, and regulated appropriately, it has the potential to modernize payment systems and support demand for central bank money even if alternative digital means of payments are rapidly adopted.

The IMF however, said the decision to explore and potentially launch CBDC should remain jurisdiction-specific, depending on policy objectives and domestic circumstances.

The IMF said, “Financially excluded populations mostly use cash. And yet, CBDC can be designed to replicate desired properties of cash. For instance, CBDC could be used without a bank account for those holding and transacting small amounts.

“It could have low or no fees for small transactions and apply less stringent identification requirements to accommodate low-risk populations lacking formal identity documentation. CBDC could even be designed to operate offline, to accommodate rural areas with patchy connectivity.

“Also, as a direct liability of the central bank, CBDC should be trusted – more so than commercial banks about which rural populations may be skeptical. Once adopted by the financially excluded, CBDC can serve as an entry point to the broader formal financial system.”

Some of the ways central banks could explore CBDC according to IMF is by adopting a dynamic decision-making framework because differs from other central bank initiatives in areas where much experience has been gained internationally and the degree of uncertainty is lower.

The document said central banks must also take measures to safeguard financial integrity.

IMF said, existing money laundering and terrorist financing vulnerabilities must be assessed as a start, and addressed with proper mitigating measures, such as customer due diligence, record-keeping and implementation of targeted financial sanctions.

The document added, “To build trust in CBDC, robust institutional, legal, and technological safeguards should be adopted to protect user privacy while ensuring compliance with AML/CFT standards.”

Recall that the CBN had on Monday, October 25, 2021 launched the eNaira which became the world’s second public CBDC, after the Bahamas’ Sand Dollar project.

When the eNaira portal went live, over 33 banks had been fully integrated on the platform, just as 2,000 customers have been onboarded and 120 merchants registered on the portal.

Since its launch, the eNaira has seen low rate of adoption among Nigerians.

In May 2023, a report by the IMF said about 98.5 per cent of eNaira wallets downloaded after the unveiling of the digital currency have been abandoned.