The growth of central bank digital currency has considerably expanded across the African continent. The Central Bank of Nigeria (CBN) launched its central bank digital currency (CBDC), the eNaira, on October 25, 2021.
The eNaira is a digital form of the Nigerian naira and is backed by the full faith and credit of the Nigerian government. It can be used to make payments for goods and services, transfer money, and store value. The Central Bank of Nigeria has set a number of goals for the eNaira. These goals include:
Increasing financial inclusion is the first goal. Indeed, the eNaira is designed to make it easier for people who do not have access to traditional banking services to participate in the financial system. The second goal is to reduce the cost of payments. The eNaira can be used to make payments without the need for intermediaries, which can help to reduce the cost of payments. The third objective is to improve the efficiency of the payments system. The CBN believes that eNaira can be used to make payments quickly and easily, which can help to improve the efficiency of the payments system. The fourth and last goal is to combat financial crime. the eNaira can be used to track and trace financial transactions, which can help to combat financial crime.
In mid-June 2023, the Central Bank of Nigeria announced the introduction of the eNaira in its latest press release as a payment option for inbound remittances in an effort to help increase the adoption of CBDC. The adoption of the eNaira for international remittances means that people living in Nigeria will now be able to receive remittances from abroad in eNaira.
The CBN said that the approval of the eNaira for international remittances was in line with its goal of promoting financial inclusion and reducing the cost of remittances. The CBN also said that the eNaira would make it easier for Nigerians living abroad to send money to their families and friends in Nigeria.
The use of eNaira for international remittances is still in its early stages, but the CBN has said that it plans to work with international money transfer operators (IMTOs) to make the process more convenient and efficient.
According to CoinGeek, under the new regime, IMTOs are expected to apply for a one-time license to pay out funds in the eNaira, with the central bank providing account details for IMTOs to receive foreign currencies. The standing rules will require IMTOs to open merchant wallets with the banking regulator, funding the account with foreign currencies.
The approval of the eNaira for international remittances is a significant development for the CBDC space. It is the first time that a central bank has approved the use of its CBDC for cross-border payments. This could pave the way for other central banks to follow suit and could help to make CBDCs more widely adopted.
The eNaira presents certain benefits for international remittances. First, the lower fees, faster transfers, more security around the transfer process, and make it more convenient for Nigerian consumers. It could help to reduce the cost of remittances, make transfers faster, and improve the security of cross-border payments.
Nevertheless, the use of CBDC also generates some negative aspects that need to be carefully monitored to avoid spillovers. These negative aspects include increased surveillance, the reduction of financial inclusion, the disruption to the financial system, negative impact on monetary policy, and cybersecurity risks.