Nigeria's central bank adjusts eNaira model and hikes interest rate amid economic challengesThe Central Bank of Nigeria (CBN) is altering the model of its central bank digital currency (CBDC), the eNaira, to encourage more usage. Despite the number of eNaira wallets increasing to 13 million between October 2022 and March 2023, the adoption rate remains low for a country with a population of nearly 224 million.
The CBN has also upgraded the eNaira app to enable contactless payments, aiming to boost the service offering and make it more user-friendly. However, the specifics of the changes to the eNaira model have not been disclosed.
Challenges in eNaira adoption
The eNaira faces several adoption challenges. It is important to know that the value of eNaira transactions up to March 2023 was 22 billion naira ($48 million), a small figure considering Nigeria’s $220 billion informal economy that largely relies on cash. However, the country also lacks the necessary infrastructure for extensive eNaira use, with too few merchants accepting the digital currency.
Numerous Nigerians have expressed that they do not see a convincing reason to use the eNaira. The Central Bank of Nigeria’s strategy is focused on the low transfer fees as a means to encourage adoption of the eNaira among Nigerians, particularly the younger demographic who have shown interest in startups that offer digital financial services. However, it appears that the method of transferring money is more important than the cost of the transfer.
In another significant development, the CBN’s Monetary Policy Committee also increased the Monetary Policy Rate (MPR), which measures the interest rate, from 18.5% to 18.75%. This decision, announced by Acting CBN Governor Folashodun Shonubi, marks the first Monetary Policy Committee meeting and decision since President Bola Tinubu took office on May 29, 2023. The CBN has been raising the interest rate to curb inflation, despite Tinubu’s campaign promise to reduce interest rates.
The hike in the MPR comes as Nigeria grapples with rising inflation. Also, the National Bureau of Statistics reported that Nigeria’s headline inflation rate increased to 22.79% in June 2023, up from 22.41% in May. This figure is 4.19% higher than the rate recorded in June 2022, underscoring the country’s ongoing economic challenges. The CBN’s recent decisions reflect the challenges facing Nigeria’s economy and the efforts to promote the use of eNaira.
Nonetheless, the success of these announcements will depend on their implementation and the response of the Nigerian citizens.
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