eNaira Will Reduce Commercial Banks Deposit-IMF

By Fola James

Commercial Banks in the country are set to lose customers and deposit to the CBDC also known as e-naira, the International Monetary Fund, IMF has warned.

The CBN, had said after launching the currency, four weeks ago, that it was not in competition with banks for deposits.

The CBN Governor Godwin Emefiele refuted the possibility of deposit money banks losing customers as a result of the introduction of the e-Naira. The apex bank later issued a statement where it said “eNaira opens up a whole new market of digital currency users for financial institutions to increase their customer base and add value to their account owners.

“Financial Institutions act as bridges between customers and the CBN, this increased customer interaction can help them adopt better customer support models.

“eNaira is not a subtle scheme to steal your customers. It is a collaboration to grant access to more financially excluded people.

“eNaira gives every linked financial institution access to the database of customers with wallets domiciled in their banks.”

But the IMF has disclosed in its ‘Country Focus; Five Observations on Nigeria’s Central Bank Digital Currency’, that competition for deposit is imminent with the introduction of CBDC.

The Bretton Wood US-based institution, also warned that the new digital currency poses a threat to cyber security, urging the Godwin-Emefiele-led CBN to prepare for various risk associated with digital currency, because “like digital currencies elsewhere, the eNaira carries risks for monetary policy implementation, cyber security, operational resilience, and financial integrity and stability.”

“For example, eNaira wallets may be perceived, or even effectively function, as a deposit at the central bank, which may reduce demand for deposits in commercial banks. Relying as it does on digital technology, there is a need to manage cyber security and operational risks associated with the eNaira.”

According to the IMF, the launch of the digital currency is drawing interest from the global world, and other central banks because of the size and complexity of Nigeria’s economy.

CBN must fashion out ways no manage risks associated with digital currency, the global financial institution said.

“The 2021 IMF Article IV mission emphasised the need for monitoring risks and macro-financial impacts associated with a central bank digital currency.

“The IMF is ready to collaborate with the authorities on data analysis, cross-country studies, sharing the eNaira experience with other countries, and discussing further evolution of the eNaira including its design, regulatory framework, and other aspects.”

Speaking while unveiling eNaira on October 25, President Muhammadu Buhari said the digital currency will boost the nation’s economy by over $29 billion.

“Let me note that aside from the global trend to create Digital Currencies, we believe that there are Nigeria-specific benefits that cut across different sectors of and concerns of the economy,” he added.

“Alongside digital innovations, Central Bank Digital Currency (CBDC) can foster economic growth through better economic activities. Indeed, some estimates indicate that the adoption of CBDC and its underlying technology, called blockchain, can increase Nigeria’s GDP by US$29 billion over the next 10 years. 

“CBDCs can also help increase remittances, foster cross border trade, improve financial inclusion, make Monetary Policy more effective, and enable the government to send direct payments to citizens eligible for specific welfare programme,’ the president.