IMF says 98.5% of eNaira wallets unused despite increased usage during cash scarcity

The International Monetary Fund (IMF) says that the adoption of Nigeria’s digital currency, the eNaira, has remained significantly low, with a whopping 98% of the digital wallets unused, despite the country being Sub-Saharan Africa’s largest economy.

This was contained in a recently released research paper titled ‘Nigeria’s eNaira, One Year After’. The digital currency, which was also the first central bank digital currency (CBDC) in Africa and the second in the world after the Bahamas, was reviewed by the Bretton Woods institution based on its performance during its first year.

According to the paper, the majority of wallets appear to remain dormant on transactions, with the exception of a brief window of weeks during which activity spikes. The institution said that only 1.5% of downloaded wallets completed the typical weekly amount of eNaira transactions.

“The average number of eNaira transactions since its inception amounts to about 14,000 per week—only 1.5 per cent of the number of wallets out there. This means that 98.5 per cent of wallets, for any given week, have not been used even once,” the paper further reads.

The paper also noted that the average value of eNaira transactions has been 923 million naira per week—0.0018 per cent of the average amount of M3 during this period. The average value per one transaction has been 60,000 naira.

In reference to the number of downloads, the institution noted that the adoption has been “disappointingly low”, given the region’s financial inclusion and remittance challenges.

“The retail wallet downloads saw a few weeks of initial surge before tapering off. More specially, it only took 25 days for the number of downloaded wallets to reach 500,000 units—but going from there to 600,000 units took another 63 days; and to 700,000 units yet another 143 days,” the paper reads.

“As of end-November 2021, the total number of retail eNaira wallets amounted to about 860,000. This is just 0.8 per cent of Nigeria’s active bank accounts. Merchant wallet download has reached about 100,000 in end-June, which is about one-eleventh of the number of merchants with Point-of-Sales (POS) terminals—which enables credit or debit card payments”, it further stated.

Nigeria’s cash crunch and eNaira’s performance

On October 25, 2021, The Federal government of Nigeria launched the country’s Central Bank Digital Currency (CBDC), the eNaira. While unveiling the digital currency, President Muhammadu Buhari noted that alongside the innovation which the eNaira promises, its adoption could improve economic activities and increase Nigerian GDP by $29bn over the next 10 years.

Despite all these promises, the adoption of the eNaira has been underwhelming and pushed aside by many Nigerians as one of those digital futilities. Indeed, one year after its launch, the Nigerian CBDC is still struggling with a transaction volume of 700,000 amounting to just N8bn in value.

However, the cash crunch occasioned by the Central Bank’s naira redesign policy brought a glimmer of hope for what was possible with its adoption. During the period, the number of eNaira wallets increased by more than 12 times to 13 million while transactions soared by 63%.

Of course, this was occasioned by the utter frustration of Nigerians and the lack of the necessary infrastructure to support the accompanying cash scarcity brought by the policy. Nigerians searched for more efficient alternatives like neobanks, which could facilitate their transactions. The eNaira wallet was surprisingly one of those alternatives.

But now that the cash crunch is over, and the resultant flooding of the economy with more cash by the Central Bank of Nigeria (CBN), the eNaira has returned to its former state of rejection from Nigerians.

Solutions offered by the IMF

Just recently, the G7 advanced economies made it part of their priority to deliberate on the best possible ways to help developing countries introduce central bank digital currencies (CBDC) into their economies at a summit, slated to hold in Hiroshima, Japan.

That was closely followed by the meeting of finance ministers and central bank governors of the seven major countries (G7) which was held in Niigata, Japan between May 11 and 13, with the adoption of a joint statement.

As part of their deliberations, they expressed their intention to keep on plying the policy deliberation route to address financial digitization. Stringent emphasis was placed on the importance of CBDCs and the vital roles they play in the global payment system. There were also calls to improve international regulation and oversight of crypto-assets (virtual currencies).

In addition, the G7 recognized the ongoing work by the International Monetary Fund (IMF) in partnership with proven international organizations and national institutions to compile the “CBDC Handbook.”

In the paper, the IMF said network effects suggest the initial low adoption spell would require a coordinated policy drive to break it. According to it, if the adoption of digital currency, particularly the eNaira is to be significant, then it requires some form of strategy between it and mobile money infrastructures.

It says;

“A retail CBDC has a potential to either compete with or complement private digital money—particularly mobile money—which means that county authorities need to decide which relationship with it to pursue as a part its CBDC strategy. One option is for the central bank to pursue a complementary relationship with mobile money—by staying out of retail interactions and providing CBDC to existing market players, among others, as a bridge for interoperability.”

It also adds that it can potentially be cost-effective to implement digital currencies as part of the remittance process. It thinks this will effectively make it an unavoidable route that would drive its usage and adoption more.

“First, granting foreign IMTOs direct or indirect access to the eNaira is an important consideration. In case of direct access, foreign IMTOs will be able to own eNaira merchant wallets45 and use them to intermediate remittances by, say, selling the eNaira to the remittance senders (in exchange of foreign currency)—who can then make a wallet-to-wallet transfer to domestic recipients.”

“Cost savings from integrating CBDC—as a bridge vehicle—in the remittance process may also be substantial”, it says