Nearly 18 months after launching its in-house central bank digital currency (CBDC), the eNaira, Nigeria is seeing increased adoption in the CBDC as national fiat reserves face severe shortages.
The acute cash shortage in Nigeria was due to the central bank’s decision to replace older bank notes with bigger denominations amid rising inflation. While developing nations were among the first to acknowledge the importance of a CBDC in revamping fiat capabilities, the idea is yet to materialize.
However, the lack of physical cash forced Nigerians to use the eNaira. In a country where cash accounts for about 90% of transactions, the value of eNaira transactions increased 63% to 22 billion nairas ($47.7 million), revealed a Bloomberg report.
Moreover, according to Godwin Emefiele, governor of the Central Bank of Nigeria, the total number of CBDC wallets grew more than 12 times compared with October 2022 and is currently at 13 million.
The demonetization reduced the circulating cash supply from 3.2 trillion nairas to 1 trillion nairas. Compensating for this decline, Nigeria minted over 10 billion eNairas. In addition, eNaira payouts in government initiatives and social schemes also contribute to the increase in CBDC’s adoption.
For developing countries, CBDCs present a way to overcome challenges presented by the fiat economy, which includes reducing operating costs and strengthening Anti-Money Laundering initiatives.
“The eNaira has emerged as the electronic payment channel of choice for financial inclusion and executing social interventions,” concluded Emefiele.
Amid the cash crunch, Nigerians have been presented with another option for procuring cryptocurrencies. MetaMask’s parent firm ConsenSys recently announced a new MoonPay integration, which allows Nigerians to purchase crypto via bank transfers.