Nigeria is experiencing a surge in Central Bank Digital Currency [CBDC] adoption roughly 18 months after its launch, as the country’s national fiat reserves are depleting.
The cash shortage in Nigeria is the result of the central bank’s decision to replace outdated currency with larger denominations in response to inflation. Although developing nations were among the first to identify the value of a CBDC, the concept has yet to be implemented in most regions.
In addition to the local political climate and other macroeconomic variables, the current cash crunch results from the contemporary financial climate. The redesigned naira has unquestionably worsened the current economic crisis and increased pressure on the unbanked.
Nigerians are experiencing record-high inflation of 21% and a shortage of the recently redesigned naira.
Nigeria’s circulating cash supply has decreased from 3.2 trillion nairas to 1 trillion nairas as a result of demonetization. To offset this drop, Nigeria has issued approximately 10 billion eNaira.
Moreover, eNaira rewards in government efforts and social programs encourage CBDC adoption.
CBDCs: A Lifeline For Cash-Strapped Economies?
According to a Bloomberg report, the scarcity of physical currency has compelled Nigerians to adopt the eNaira. In a country where 90% of transactions are conducted in cash, the value of eNaira transactions has increased by 63% to 22 billion nairas.
The Central Bank governor, Godwin Emefiele, stated that the number of CBDC wallets has increased by more than 12 times since October 2022.
Emefiele asserted that eNaira had become the preferred electronic payment method for promoting financial inclusion and implementing social welfare initiatives.
CBDCs claim to offer a means for developing nations to overcome the obstacles posed by the fiat economy. According to the Atlantic Council, only 11 countries have so far established their own CBDCs. Nigeria is the largest nation with an operational CBDC; the rest are small Caribbean island nations.