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IMF: Unified exchange rate critical to eNaira’s success

…says digital currency risky

 

A unified market clearing exchange rate as well as other measures that will strengthen confidence in the naira are key to ensuring that the Central Bank of Nigeria’s (CBN) plan to allow Nigerians in the diaspora send remittances through its digital currency (eNaira) platform is successful, the International Monetary Fund (IMF) has said.

 

The Fund, which stated this in its April Regional Economic Outlook for sub-Saharan Africa, noted that the eNaira, which is the first Central Bank Digital Currency (CBDC) to be issued on the continent and the second in the world after the CBDC issued by Bahamas, “provides a useful example of how CBDCs could work in practice.”

 

It noted that many central banks across the world—including 13 in sub-Saharan  Africa—werecurrentlyexploring the option of using a CBDC toenhancetheir electronicpayment system. The IMF, however, stressed that while CBDCs have several possible advantagessuchasfostering financial inclusion and facilitating cross-border transfers and payments, they also entailed potential challenges and risks. The Bretton Woods institution thus advised that “before pursuing CBDCs, central banksintheregionwould need to carefully evaluate the benefits and weigh them against the challenges and risks, considering the local context and internal capacity.”

 

It further stated that “for CBDCs to be successful they also need to be accompanied by sound macroeconomic and regulatory policies that buttressconfidenceinthelocalcurrency.

 

In addition, how CBDCs couldaffectthethrivingprivate industry for digital payment services should be carefully thoughtthroughandmanaged as some operators can have systemic importance.”

 

Commenting specifically on the eNaira, the IMF stated: “The CBN is planning to allow users without a bank account to open an eNaira wallet with onlythenationalidentification number to make it more accessible to the unbanked. Users without bank accounts will have lower transaction limits to minimise financial integrity risks.

 

“The CBN also plans to allow the Nigerian diaspora to send remittances through the eNaira platform. For this plan to be successful, it is important to strengthen confidence in the local currency and support a unified market clearing exchange rate.”

 

Last month at the post Bankers’ Committee press conference, Managing Director of Guaranty Trust Bank, Miriam Olusanya, announced that downloads of the eNaira app rose to 756,000 within six months of its launch in October.

She said: “Since it was launched, we have seen 756,000 downloads of the app. In terms of consumer wallets we have seen 165,000 downloads and 2,800 merchant wallet downloads.”

 

New Telegraph reports that the IMF had in the last few years frequently called for a unification of Nigeria’s various exchange rates as part of measures to curb pressure on the local currency occasioned by forex scarcity.

 

However, the CBN has argued that such a move will lead to a devaluation of the naira, a development, the apex bank said, would increase inflation given that the country is heavily dependent on imported goods and services.

 

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