NDIC Quarterly Vol 39 No 3&4 2024 – Central Banks’ Digital Currency and the Challenge of Monetary Policy in Nigeria in the First and Second Quarter of 2024

NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Central Banks' Digital Currency and the Challenge of Monetary Policy in Nigeria Ezra Umaru KureCentral Bank of Nigeria International Training Institute, Maitama, Abuja Usenobong Akpan and Tochukwu Felix NwanjaResearch Department, Central Bank of Nigeria Corresponding Author: uakpan@yahoo.co.uk; uapkan@cbn.gov.ng Abstract This study investigates the implications of Nigeria's Central Bank Digital Currency (CBDC), the e-Naira, for monetary policy and the financial system through an exploratory and conceptual approach, complemented by a survey of user experiences. The study reveals that while the e-Naira offers potential benefits such as enhancing financial inclusion and combating illicit transactions, its adoption remains low due to limited public awareness, merchant apathy, and a preference for existing digital financial services. Particularly, the paper argued that an interest-bearing e-Naira could strengthen monetary policy transmission, but the current non-interest-bearing design raises the effective lower bound, limiting policy flexibility. Additionally, risks to financial stability, including financial disintermediation, systemic bank runs, and cybersecurity vulnerabilities, depend on the e-Naira's adoption scale, which is currently low. The study recommends that the Central Bank of Nigeria (CBN) improve adoption by enhancing public awareness, incentivizing merchants, managing risks effectively, and collaborating with private firms to offer user-friendly features while maintaining transparent communication to build trust. Keywords: Central Bank Digital Currency, e-Naira, Financial System, CBN. JEL Code: E52, E58, E42. If a central bank were to issue a digital currency to everyone, including businesses, households and financial institutions other than banks, could store value and make payments in electronic central bank money in addition to being able to pay with cash; while this may seem like a small change, it could have wide-ranging implications for monetary policy and financial stability (Bank of England, 2017). Disclaimer: The views expressed in this paper are entirely those of the authors and do not in any way represent the position of the Central Bank of Nigeria.

1. Introduction Historically, the forms of money and the payment system have continued to evolve in parallel with the age of technology and changing economic realities. Rapid technological innovations have profoundly changed the global financial landscape over the last decade. Among others, there have been remarkable developments in the digitalization of finance, banking, and payment systems (Panetta, 2018; Akpan & Ituen, 2024). NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Recently, the COVID-19 pandemic brought another major shift in payment preferences, from the use of physical cash for transactions to more usage of electronic channels and payment systems. Besides accelerating the shift towards digital payment options, the pandemic also stimulated further mainstream acceptance of private digital tokens like Bitcoin and other cryptocurrencies. The global hype and heightened usage of cryptocurrencies, and the implications of the developments for financial system stability, eventually became the subject of escalating debate and interest about how best central banks could respond to the emerging scenario (Fernandez de Liz, 2018; Pichler & Summer, 2018; Akpan & Ituen, 2024). While some countries reacted by restricting or banning cryptocurrencies, others have retained a neutral or open regime towards them. Part of the concerns relates to the possibility that private virtual currencies or assets could become an alternative means of payment and, possibly, units of account and eventually reduce the demand for fiat currencies or central bank money, with obvious implications for the effectiveness of central banks' monetary policy instruments. Interestingly, probably to fend off the pressure and potential impacts of private virtual currencies on their financial systems, many central banks have been stimulated to ramp up efforts to explore the benefits and drawbacks of issuing a digital version of fiat money – the Central Bank Digital Currency (CBDC). Some countries have undertaken extensive pilots or tests of CBDCs (e.g., South Korea, Jamaica, France, Ghana, South Africa, China), while many others are still carrying out explorative research (e.g., USA, Switzerland, Bahrain, UK). At the time of conducting this study, only two countries (The Bahamas and Nigeria) had issued the CBDCs and made them fully accessible to the general public. An important research issue arising from this is the extent to which the CBDC would upend the role and implementation of monetary policy. Our opening quote from the Bank of England (2017) suggests that the issuance of a CBDC could have significant consequences for monetary policy and the financial system. In this paper, we evaluate this concern in the case of Nigeria. The paper attempts to offer a broader understanding of the opportunities and challenges arising from the adoption of the e-Naira. Given the novelty around CBDC, the scope of studies on it is mostly hypothetical (BIS, 2018; Mancini-Griffoli et al., 2018; Beniak, 2019). Consequently, we discuss these issues, mainly at the conceptual level, complemented with a review of experiences from other jurisdictions and a survey of users' experiences with the e-Naira. We consider this an important research focus for Nigeria, given the uniqueness that the e-Naira represents, being the first in Africa and the second CBDC fully accessible to the public after the Bahamas' Sand Dollar. We believe any lessons from this paper would not only be useful to further improve the current framework and design of the e-Naira, but would also provide insights for other countries that intend to emulate the path of Nigeria. In terms of structure, we proceeded, in the second section, to evaluate some of the motivations that drive policymakers' interest in CBDCs around the world. In the third section, we review NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 experiences from other jurisdictions on CBDC projects. The fourth section examines the opportunities and challenges of CBDC (the e-Naira) for monetary policy in Nigeria, as well as the financial system in general. Some final thoughts and options for policy considerations are offered in the final section.
2. Motivations for the Drive towards Central Bank Digital Currency Judging from the existing literature, factors that drive global interest in CBDC are motivated by global trends and country-specific circumstances. Overall, there are at least three such motivations that appear to be common across many jurisdictions, especially those conducting pilot tests of CBDC. The first one is the financial inclusion motive. In other words, many central banks, including the CBN, consider the CBDC as a means of improving access to payment services for the unbanked public. A survey conducted by a development finance organization, the Enhancing Financial Innovation and Access (EFInA), has shown that as of 2020, a large number of Nigerians are still financially excluded (38.1 million people, representing 36 per cent of the adult population). Hence, the government intends to use the e-Naira as a gateway to facilitate the achievement of 95 per cent financial inclusion by 2024, by increasing access to digital payment solutions. The same policy goal has been echoed in the Bahamas and the Eastern Caribbean Currency Union (ECCU), where pockets of the population are excluded from financial services on account of their locations in difficult islands that are largely unprofitable for banking services operations (see IMF, 2019; Soderberg, 2022). The second common motivation relates to the need to provide safe and efficient payment systems (see Sveriges Riksbank, 2017; Sveriges Riksbank, 2018; Norges Bank, 2018; CBOB, 2019; Boar & Wehrli, 2021). For instance, according to the Central Bank of Nigeria (CBN), one of the benefits of the e-Naira includes its potential to offer better payment prospects in retail transactions compared to cash payments36. In other words, in countries where the existing digital payment platforms are relatively expensive, CBDCs are seen as a potential policy tool that can offer low-cost digital forms of payment transactions as a public good. The third motivation is the need to safeguard financial system stability and the sovereignty of monetary policy by providing alternatives amidst the declining use of cash in transactions (Boar and Wehril, 2021). A recent report by the US Federal Reserve (2022) indicated that the proportion of cash payments in the US had fallen from 40 per cent in 2012 to 19 per cent in 2020, while it fell from 33 per cent to less than 10 per cent over the same period in Sweden (see also Figure 1). In China, the report had it that 50 per cent of point-of-sale (POS) transactions were made with a mobile wallet or app, while cash accounted for only 13 per cent. 36 https://www.enaira.gov.ng/ NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Figure 1: Sweden's Cash in Circulation Trend (Annual Average) SEK bnPer cent 1004.2 803.6 603.0 402.4 201.8 01.2 0305070911131517 Nominal value (lhs) Percentage of GDP (rhs) Source: Bech & Garratt, 2017. Beyond the above motives, Auer (2022) highlighted four key issues that sparked global interest in CBDC. These include the threats to the diminishing importance of fiat money due to the rapid interest in cryptocurrencies, especially Bitcoin; the advent of private sector-issued stablecoins, which has the potential to fragment banking system liquidity and detract from the role of money as a coordination device; the disruptions that platform-based business models and big data introduced to the financial system; and the COVID-19 pandemic which accelerated the adoption of digital payment technologies. The notion of using CBDC as a means of government-to-person payment, notably direct fiscal assistance or stimulus to households and small businesses, is also widely shared, especially in disaster-prone nations. In the case of the Bahamas, strengthening the fight against money laundering and terrorism financing has been added as another driving factor for the launching of the CBDC, while in Nigeria, the CBN has also identified facilitating cross-border payments and enhancing remittances as among other policy goals behind the introduction of the e-Naira. More so, the urge to introduce the CBDC in Nigeria may also find a strong appeal, given the high proportion of the domestic currency that is outside the banking system. Available data indicate that, as a proportion of currency-in-circulation, currency outside the depository cooperation was over 70.0 per cent between 2007 and 2022 (Figure 2). In this sense, the e-Naira may as well be another effort by the Bank to deepen its cashless policy initiatives and improve monetary policy effectiveness. Figure 2: Ratio of Currency Outside Banks to Currency-in-Circulation in Nigeria NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 77.1879.37 76.6874.98 74.3673.29 72.0077.52 76.6776.92 75.2675.32 79.5778.91 77.2777.48 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Authors' computation from CBN Monetary Survey
3. CBDC: Select Country Experiences Significant concerns are being expressed about whether central banks should move cautiously or expeditiously in the adoption of CBDC. In considering this, some central banks are carefully weighing the risks that it portends to the monetary architecture against the expected or perceived benefits. In particular, in view of the novelty of the CBDC, some countries have taken deferred actions, while using the window to conduct research into it and also monitor the experiences of ‘the early adopters' of CBDC. A survey carried out in the fourth quarter of 2020 by Boar and Wehrli (2021) indicates that about 86 per cent of global central banks were actively engaged in some form of work on CBDCs, with about 60 per cent (up from 42% in 2019) conducting proof-of-concepts or similar experiments on CBDCs. Figures 3 and 4 show the geographical dimensions and status of CBDCs as of June 2022 across the world and Sub-Saharan Africa, respectively. The figures indicate that, although interest in CBDCs is gaining global momentum, most countries were exploring it at the research stage (e.g., Kenya, Zambia, Jordan, Peru, the UK, and Switzerland). A few others, such as Ghana, South Africa, China, Uruguay, and Eastern Caribbean, amongst others, were carrying out pilot tests of the CBDC while others (e.g., Brazil, Australia, Malaysia and New Zealand) moved on to the advanced research stage with published CBDC proof of concept. The last group of countries (e.g., Denmark) do not see any immediate need for CBDC and is focused instead on improving their current payment platforms and strengthening the regulatory framework37. In this section, to gain insights from other NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 jurisdictions, we take a brief review of a few countries that have either launched the CBDC or have conducted a pilot. Figure 3: Status of CBDCs Across the World, June 202238 [Map showing CBDC status across the world] CancelledResearchProof of conceptPilotLaunched Source: cbdctracker.org Figure 4: Status of CBDCs in Sub-Saharan Africa as of June 2022. [Map showing CBDC status in Sub-Saharan Africa] Launched Pilot Research N/A Ghana Nigeria Zambia Namibia Uganda Kenya Rwanda Tanzania* Mauritius Madagascar Zimbabwe South Africa Eswatini Source: cbdctracker.org 38 Note: Cancelled = countries that cancelled or decommissioned a CBDC; Research = countries that have conducted first exploratory CBDC research; Proof of concept = countries that are in an advanced research stage and have published a CBDC proof of concept; Pilot = countries that have developed a CBDC that is tested in a real environment either with a limited number of parties or on a wide scale; Launched = countries that officially fully launched a CBDC. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Specifically, in South Africa, the central bank (South African Reserve Bank) is experimenting with a wholesale CBDC39, which can only be used by financial institutions for interbank transfers, as part of the second phase of its Project Khokha. The country is also participating in a cross-border pilot called Project Dunbar with the central banks of Australia, Malaysia and Singapore, to develop prototype shared platforms using multiple CBDCs. The aim was to facilitate seamless multi-currency fund transfers between each other. China also conducted a pilot test of its CBDC, the e-CNY, in about a dozen regions across the country. The e-CNY is designed as a two-tier system, with the People's Bank of China (PBOC) responsible for its issuance and settlements, while existing commercial banks and other payment system processors (e.g., Alipay and WeChat Pay) are responsible for its distribution to individual users. Unlike the case in other jurisdictions, the e-CNY is not fully anchored on blockchain but only borrows its key features, such as peer-to-peer payments and traceability. This gives it the flexibility to adopt any appropriate technology which is compatible with those adopted by commercial banks (Jiang and Karman, 2021). In May 2020, the PBOC entered into a partnership with some big private companies to roll out e-CNY on a large scale. Soderberg (2022) reported that there were over 123 million individuals and 9.2 million firms with registered e-CNY wallets in China as at October 2021. A key lesson here is that years after it started, the e-CNY is still in the pilot phase, as the PBOC continue to monitor the pros and cons of its application. The Eastern Caribbean Central Bank (ECCB) launched a 12-month pilot test of its Dcash across countries in the Eastern Caribbean Currency Union (ECCU) in March 2021. The Dcash is distributed by authorised financial institutions and can be used for transactions between households and merchants as well as person-to-person (P2P) transactions. Following its successful pilot test and rapid adoption, the ECCB is considering an official launch of the Dcash. In the case of the US, the Federal Reserve's position on the CBDC can be summed up in the following statement by Powell (2021): To date, no decision has been made on whether to issue a CBDC in the US payment system. However, given the dollar's important role globally, it is essential that the Federal Reserve remain fully engaged in CBDC research and policy development. The Federal Reserve is focused on better understanding the underlying technologies and their potential, as well as policy issues associated with the CBDC. Precisely, although the US has carried out intensive research on Project Hamilton, they are not yet convinced that a CBDC would bring any substantial gains or solve any problem that is not 39 The CBDC is conceived in both retail and wholesale forms. A wholesale CBDC is available only to a selected set of financial institutions, while the retail CBDC, also called general purpose CBDC, is available to the public. The e-Naira is an example of retail CBDC. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 currently being addressed, more promptly and efficiently, by existing payment platforms and initiatives. In Sweden, the introduction of e-Krona may have been driven by a significant drop in the demand for cash over the past decade (See Figure 1). It has also been reported that many shops in the country are beginning to reject cash payments, just as some banks no longer dispense or collect cash (Bech & Garratt, 2017, Skingsley, 2016). `The work on e-Krona started in 2017. Thereafter, the Sveriges Riksbank published two reports on the e-Krona in 2017 and 2018, before running a pilot test in 2020 by issuing it to financial institutions for further distribution to end-users (Sveriges Riskbank, 2017, 2018, 2020). In 2021, the Riskbank continued technical and design testing for possible procurement of an issuable e-Krona. At the time of this study, the e-Krona was still in its pilot phase with no formal decision taken to fully launch it. The Bahamas, which became the first country in the world to launch the retail CBDC (the Sand Dollar) in October 2020, first conducted a successful pilot test in 2019 on the island conglomeration of Exuma40. The Bahamas' Sand Dollar, whose functions are continuously being developed, is stored in digital wallets and distributed through commercial banks, which, in turn, grants access to households to carry out transactions either through a mobile phone application or a physical payment card (Auer, et al, 2021)41. In late 2021, there were around 20,000 active Sand Dollar wallets in a population of about 400,000 (Soderberg, 2022). Among the main motivations driving the Sand Dollar project is to provide greater financial inclusion across the country and ensure the resilience of the payment system. This is primarily because the Bahamas consists of islands, some of which are considered unprofitable for commercial banks to operate, and at times experience frequent natural disasters (IMF, 2019). As reported in Soderberg (2022), the 2019 hurricane disaster in the Bahamas hastened the commencement of the Sand Dollar pilot project to accelerate payment solutions and assistance to and within the afflicted areas. On October 25, 2021, Nigeria became the second country, after the Bahamas, to launch the CBDC (the e-Naira). But unlike the Bahamas' Sand Dollar, the e-Naira was not subjected to any pilot test. Designed as a retail CBDC and fully available to all Nigerians, the e-Naira is expected to improve monetary policy effectiveness, enhance the government's capacity to deploy targeted social interventions and facilitate cross-border payments as well as diaspora remittances by lowering transfer costs (CBN, 2021). It is also expected to increase the level of financial inclusion by providing more opportunities to bring the unbanked public into the digital economy, amongst others. At the time of conducting this study, the e-Naira wallet was available to only bank customers, with ongoing efforts to provide a channel that would enable those without bank accounts to transact with the e-Naira. As of August 18, 2022, it was reported that since the launch of the digital currency, the e-Naira has recorded some milestones, with 840,000 downloads and 40 Cbdctracker.org 41 If any commercial bank wants to add Sand Dollar to their wallet, they apply to the central bank, which would now add the requested amount to the institution's wallet, and the central bank receives payment for the Sand Dollar via fiat currency. In February 2021, the Bahamas Central Bank partnered with Mastercard and a digital payment service provider, Island Pay, to launch a prepared card for its CBDC, which can be used for transactions anywhere Mastercard is accepted (see Nakamoto Terminal CBDC Factbook: The Bahamas (inca.digital) NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 about 270,000 active users42. This could be regarded as some kind of remarkable progress, coming barely eleven months after its introduction. But considering Nigeria's population of over 200 million people with about 55 million bank account holders, the number of active users raises considerable concerns about its acceptability among Nigerians. 3.1 The e-Naira Experience: Evidence from A Survey To gain some insights into users' experiences with the e-Naira, we developed and distributed a structured questionnaire using a simple random sampling method. The questionnaire was designed to evaluate Nigerians' perceptions and attitudes towards the adoption of the e-Naira as a tool for financial inclusion, which is a key objective of the digital currency. It was structured into four sections: demographic information, awareness and usage of the e-Naira, perceived benefits, and perceived challenges. The questionnaire consisted of 14 questions in various formats, including multiple-choice, Likert scale, and open-ended questions. Before its distribution, the questionnaire was pre-tested on a small sample of 15 respondents to ensure clarity and relevance, leading to minor revisions. Thereafter, it was administered online using Google Forms. The survey link was shared via email and social media platforms, including WhatsApp, Facebook, and LinkedIn, to reach a broad and diverse group of participants. 43. The survey targeted Nigerians aged 18 and above who had internet access. There were no specific exclusion criteria beyond the requirement for respondents to be familiar with basic digital financial services, and in the end, a total of 230 responses were received. Results show that the respondents were predominantly male (85%) and aged between 26 and 45 years, with 89.5% holding at least a university degree and 70% residing in urban areas, 18% in suburban areas, and 12% in rural areas (Table 1). The strong presence of individuals with BSc/HND and postgraduate qualifications highlights the sample's high level of academic achievement, which could influence their understanding and adoption of financial technologies like the e-Naira44. In terms of income distribution, the majority of respondents (62.2%) earn above ¥60,000, indicating that the sample predominantly comprises higher-income individuals. A smaller percentage of participants (20.87%) fall into the middle-income bracket, earning between ¥30,000 42 CBN Governor's keynote speech delivered at the Grand Finale of the e-Naira Hackathon, held at the International Conference Centre, Abuja, August 18, 2022. 43 The survey questions are attached in the appendix, while the link to the online version can be accessed at https://forms.office.com/Pages/ResponsePage.aspx?id=1X3cnNadu0-aaLy5Ahch0B4IgqdtnFxKgtPn1SGeswdUNUtDMUZUTKNONEJYVIBYOFRJWVVUNlpTMy4u 44 While the survey yielded valuable insights into perceptions of the e-Naira, the sample leaned more toward urban and educated respondents, reflecting the online mode of distribution. Consequently, the findings may not fully capture the experiences of individuals in rural areas or with limited digital access. Nevertheless, given that the e-Naira had yet to achieve significant nationwide penetration at the time of the study, this limitation does not diminish the usefulness of the results but rather highlights the need for future surveys to broaden coverage and capture perspectives from more diverse demographic groups. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 and ¥60,000. Only 4.78% of respondents earn less than ¥10,000, suggesting that most of the respondents are economically active and possess relatively high earning potential. Table 1: Demographic Statistics of the Respondents No of RespondentsPer centage (%) Age bracket 18-25177.39 26-4518881.74 46-652310.00 60 and above20.87 Gender Male19584.78 Female3515.22 Employment Status Permanent full-time job13659.13 Self-employed5323.04 Student/unemployed/retired2812.17 Others (not listed)135.65 Main Economic Activity, if employed Finance & Banking5323.04 Education5423.48 Manufacturing31.30 Agriculture125.22 Others10846.96 Average Income per month Less than ¥10,000114.78 Between ¥10,000 to ¥29,0002310.00 Between ¥30,000 to ¥60,0004820.87 NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Above ¥60,00014362.17 Cannot say52.17 Educational Level FSLC31.30 WAEC/SSCE/GCE or equivalent104.35 OND114.78 Bachelor Degree/HND11349.13 Post-graduate (PGD/MSc/PhD)9340.43 Location Rural2812.17 Suburban4218.26 Urban16069.57 Source: Authors' Survey Overall, we found that the e-Naira, in its present form, faces considerable challenges. While the awareness of the e-Naira was impressive among the sampled respondents (91.7%), the results indicate that very few of them (36.7%) expressed readiness to use the digital currency by downloading the e-Naira wallet, despite the majority of them (94.3%) having Android phones (Figure 5). In the last six months preceding the survey, only a small fraction of the respondents who had the e-Naira wallet carried out transactions with it, either in terms of receiving (16.6%) or making payments (15.7%) (see Figure 6). The majority of the respondents (76.4%) were yet to make any transfers or payments using the e-Naira. The low level of acceptability among merchants across the country and the availability of alternative robust digital payment platforms such as Internet banking and mobile banking apps could probably explain why e-Naira transactions have stalled in the last ten months. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Figure 5: Awareness of the e-Naira and Readiness to Use It (%) [Bar chart showing awareness and readiness to use e-Naira] AGREEDDISAGREEDUNDECIDED Source: Authors' Survey Figure 6: Usage of the e-Naira by Respondents (%) [Bar chart showing usage of e-Naira by respondents] AGREEDDISAGREEDUNDECIDED Source: Authors' Survey The results of the survey shown in Figure 7 tend to confirm this situation, with more than 90 per cent of the respondents having mobile banking apps of commercial banks on their mobile devices and using them more frequently for their transactions in the last six months than they have used the e-Naira. The most significant challenge facing the e-Naira appears to be the strong preference for traditional cash and Point-of-Sale (POS) systems. A majority of respondents (64.5%) agreed that they prefer cash or POS transactions over the new digital alternatives (Table 2). Additionally, 61.5% of respondents highlighted acceptance issues, suggesting that many merchants and institutions have not fully embraced or integrated the e-Naira into their payment systems. While concerns about the security and functionality of the e-Naira are present, they are less dominant NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 compared to entrenched habits and acceptance barriers. These findings imply that the success of the e-Naira depends on shifting consumer and merchant behaviour towards the new digital payments. To address these challenges, targeted efforts may have to focus on increasing merchant acceptance through incentives, simplifying the integration process, and enhancing public awareness about the benefits and security of the e-Naira. Figure 7: Usage of the e-Naira Vis-à-vis Other Mobile Apps (%) [Bar chart showing usage of e-Naira versus other mobile apps] AGREEDDISAGREEDUNDECIDED Source: Authors' Survey Table 2: Factors Militating Against the Adoption of e-Naira Agreed (%) Disagreed (%) Undecided (%) Lack of Understanding39.239.621.2 Cumbersome Process22.449.228.4 Interest-bearing concerns3030.539.5 Comfort with Existing Financial Products47.530.921.6 Preference for Cash/POS64.524.211.3 Acceptance Issues61.518.819.8 Security Concerns27.450.622 Fear of Transaction Costs34.342.723 Perceived Lack of Usefulness27.452.720 Payment Difficulties21.446.731.9 Feature Limitations21.448.430.2 Unresolved Service Complaints1945.835.2 Installation Issues23.757.219.1 Source: Authors' Survey NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 While the CBN has increased public awareness of the e-Naira in recent years, there is widespread scepticism about what new benefits the e-Naira could offer that are not already covered by existing payment solutions and ecosystems. Without a doubt, Nigeria has made significant strides in enhancing the security and robustness of its payment systems, particularly in electronic payment channels. Mobile money, in the past two decades, has experienced tremendous growth, cementing itself as a mainstream financial service, especially during the COVID-19 pandemic and afterwards. According to the 2023 State of the Industry Report on Mobile Money by the Global System for Mobile Communications Association (GSMA), Nigeria contributed significantly to the staggering 41.0 per cent increase in the number of mobile money agents to around 17.4 million in 2022 from 12 million in 2021, due to the CBN's liberalised regulatory regime. As the importance of mobile money providers (MMPs) continues to grow, demonstrating incredible resilience over the pandemic and beyond, the first hurdle to tackle, therefore, is how to fully calibrate the additional incentives that could convince Nigerians to adopt the e-Naira amid the financial services offered by mobile money operators and payment service banks (PSBs).
4. CBDC: Issues and Challenges for Monetary Policy in Nigeria An important debate surrounding the issuance of central bank digital currency relates to how it would affect the monetary policy framework and the broader implications for financial system stability and the macroeconomy. Available literature suggests that CBDCs can offer numerous benefits, including enhanced financial inclusion and facilitating direct government transfers. It could also produce gains for end-users in terms of lowering the cost of transactions, which in turn leads to improved social welfare. From the central bank's perspective, to the extent that large cash usage can be replaced by CBDC, the cost of printing, transporting, storing and distributing physical cash can be significantly reduced. Furthermore, suppose the paper currency becomes obsolete, the extensive acceptance of CBDC could also be supportive in discouraging tax evasion, money laundering and other illegal activities. These benefits are perhaps more pertinent for developing economies like Nigeria, where a large fraction of economic activities is conducted using cash and the incidence of tax evasion is high. However, the introduction of CBDC also presents new layers of risks and challenges to the financial system, the scale of which would depend largely on the extent of demand for and usage of the new digital currency. Indeed, the e-Naira could be an additional instrument for monetary policy in the future, by offering a new channel for monetary policy transmission. Indeed, by increasing financial inclusion and exposing more households and firms to interest-sensitive instruments, CBDCs could potentially strengthen monetary policy transmission (Kiff et al., 2020). However, this possibility depends largely on the question of whether the e-Naira should be interest-bearing (in the long run) or not (as it is currently), conditional also upon significant demand for it or a high volume of e-Naira in circulation, especially if the role of cash significantly diminishes. In particular, the implications of the e-Naira for monetary policy implementation could become more significant and complex if it were interest-bearing at rates comparable to other safe assets. In such a scenario, the demand for e-Naira could become highly volatile, with consumers, NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 businesses, and other entities potentially shifting away from bank deposits, treasury bills, and money market mutual funds to hold more e-Naira. Additionally, high yields leading to substantial foreign demand for the e-Naira could further complicate monetary policy execution. Fluctuations in interest rates and other market conditions could heavily influence public demand for the e-Naira over time, creating variability that poses challenges for managing reserves and effectively implementing monetary policy. Typically, it may be important to recall that monetary policy starts to have difficulties in providing additional stimulus to the economy once nominal interest rates drop below zero. This is because, at that point, economic agents (households and firms) are presumed to want to hold cash (with a zero-interest rate) rather than hold other financial instruments with a negative interest rate. Given that the e-Naira is designed as a non-interest-bearing and account-based system, run by the CBN, and competing with the accounts offered by the deposit money banks (DMBs), as long as the Bank's policy rate is positive, the e-Naira may as well be just an autonomous factor for monetary policy45. The dynamics could change, however, if the CBN decides to set its policy rate below zero and the DMBs attempt to pass it on to depositors. Rationality demands that deposit holders with the DMBs would most likely want to switch to their e-Naira accounts with the CBN (with zero interest rate). This situation, according to Beniak (2019), implies that the introduction of a non-interest-bearing CBDC like the e-Naira would lead to a higher effective lower bound (ELB)46 and lowers the policy space for monetary policy manoeuvre, akin to Keynes' (1936) liquidity trap scenario. This simply means that it would probably not be possible anymore to have negative interest rates on monetary policy. A further concern relates to the implications of the e-Naira for the CBN balance sheet and liquidity management. By the design of e-Naira, access to the CBN's balance sheet has been extended to include agents that are not credit institutions. Every e-Naira transaction causes a change in the Bank's balance sheet and therefore calls for periodic adjustments, which could complicate the central bank's balance sheet management policy. Higher demand for the e-Naira could correspondingly result in lower liquidity for the banking system. Consequently, the CBN may need to provide liquidity to DMBs that experience a large outflow of deposits if the e-Naira experiences high demand, hence opening the door to credit risk. Furthermore, the central bank would need to be able to adequately forecast how much e-Naira would be demanded, for instance, in the following week, month or quarter, in order to supply or 45 Essentially, the liability side of the CBN balance sheet can be broadly divided into two parts – the monetary policy instruments and the autonomous factors (i.e. claims on the CBN governed by the creditors' demand and which the Bank has no control). The autonomous factors could include the public's demand for banknotes and coins as well as deposits and withdrawals from the correspondent accounts with the CBN (e.g. foreign central banks, international financial institutions, and other special account holders). On the other hand, the monetary policy instruments all those that can be used to manage liquidity (e.g. deposit facilities, CBN bills, etc). 46 The fact that physical cash is constrained to a zero nominal return is the foundation of the effective lower bound (ELB) on monetary policy. This is because if the deposit rates of the DMBs become too negative, rational depositors can always switch to cash. Agur (2018) pointed out that the ELB played a crucial role during the Global Financial Crisis (GFC), by providing impetus for the deployment of unconventional monetary policies. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 withdraw an appropriate or corresponding volume of liquidity through market operations. While this may entail nothing significantly new to the current policy environment, it appears likely that it may be more difficult to have a good forecast of the volume of e-Naira as opposed to the volume of cash. This is because it would be easier to move funds between a bank account and e-Naira wallet than it would have been to move them from a bank account to cash, given that handling a large amount of cash is more complicated. Such ease means that the demand for e-Naira would probably vary more over time than the demand for cash. In addition to these implications for monetary policy, the introduction of the e-Naira also presents other issues of concern for the overall financial stability and payment system efficiency. Some of these concerns include the following. a) Risk of Systemic Bank Runs: One of the greatest risks posed by the e-Naira, when widely adopted across the country, is the risk of systemic bank runs. Ordinarily, it has to be acknowledged that systemic bank runs could still occur in the absence of the e-Naira if there are factors that warrant massive withdrawal of deposits from one bank to another at the same time (see Tolle, 2016). In such an instance, it may not be easy to have a run on the entire banking system, as it would be practically more difficult to convert all bank deposits into cash47. However, with the e-Naira, households and firms now have an alternative or incentive to quickly convert their deposits into the e-Naira (backed up by sovereign credibility) in the event of a systemic crisis or possibly unjustified rumours regarding the insolvency of some banks. Notably, the CBN seems to have pre-empted this scenario by placing a ceiling on the number of e-Naira an individual can hold, except for merchants, where there is no limit. However, this does not appear to completely mitigate this risk, as they can still decide to hold some of their deposits in the form of cash and the balance in e-Naira. One other way of mitigating this risk could be to allow the e-Naira to bear interest48, which then expands the scope for monetary policy control, as an interest-bearing e-Naira expands the central bank's ability to influence economic variables, particularly during periods when conventional monetary policy is constrained (e.g., at the effective lower bound). Thus, assume the e-Naira becomes interest-rate bearing and the CBN decide to set a negative interest rate (for instance, by introducing time-varying conversion fees as argued by Agarwal & Kimball, 2015; Goodfriend, 2016; Agur, 2018). Negative interest rates (or conversion fees) on e-Naira holdings could deter mass conversion of deposits into e-Naira during crises49. This would potentially mitigate the risk of bank runs by eliminating the substitution of bank deposits with the e-Naira and creating the potential to overcome the ELB constraints. This flexibility allows the central bank to implement negative nominal rates more effectively, making monetary policy more agile and responsive to economic conditions. 47 The only exception and possibility for a run on the whole banking sector is if it is possible for all customers to transfer their deposits to foreign banks. This is an extreme case with very limited possibility in the practical sense. 48 However, this may raise legal questions and may require amendment of relevant sections of the CBN Act. 49 While positive rates could encourage its use as a savings instrument, offering a tool for demand management NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 b) Financial Disintermediation: Directly following from the above is the issue of financial disintermediation on account of the e-Naira introduction. Rapid transfers to e-Naira could drain liquidity from commercial banks, impacting their ability to lend and function effectively. This risk is much stronger if the e-Naira eventually becomes interest-bearing. Instructively, an interest-bearing e-Naira would have different implications for monetary policy. Commercial banks may end up losing part of their retail funding base if interest rates on the e-Naira are not carefully calibrated. In an extreme scenario, if the e-Naira is widely accepted (without restrictions), banks could have less money to generate risk assets, which would have the unintended consequence of raising interest rates on loans or on deposits to retain customers. Deposit losses could also have a detrimental impact on banks' funding and liquidity positions, and hence higher interest rates in the interbank market50. Furthermore, to the extent that financial disintermediation occurs, the CBN could face an unpalatable choice on the allocation of e-Naira resources, which would either tilt credit provision towards the public sector or be reinjected into the financial sector. The latter option represents an explicit credit risk for the Bank and introduces a complex choice on how to allocate funding among the banks without opening doors to political interference or conflict of interest as a financial regulator. The issue of financial disintermediation can easily be illustrated using a simple demand and supply for demand deposit, as shown in Figures 8 and 9. Starting with Figure 8, the introduction of e-Naira, if the scale of adoption is high, draws deposits from banks, resulting in an upward shift of the deposit supply curve, and reducing the amount of bank deposits from D₁ to D. As some depositors leave the banks in favour of e-Naira, the banks could attempt to raise their deposit rates from r₁ to r½ as an incentive to make it more attractive. But higher deposit rates, in turn, would reduce their interest margins. Consequently, they could attempt to increase lending rates but risk lower loan demand. Figure 8: CBDC and the Risk of Financial Disintermediation [Graph showing deposit supply and demand curves shifting due to CBDC] Source: Adapted from Mancini-Griffoli et al (2018). 50 For instance, in the case of Sweden, Riksbank (2017) experts the introduction of e-krona to reduce commercial bank's profits and thereby affects their stability. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 However, the ability of the banks to defend their business model would most likely depend on their market power. It follows that the greater the banks' market power, the less would be the contraction in the demand for credit and the more effectively they could respond to e-Naira by preserving profits. This point is illustrated in Figure 9. With more market power in lending (as reflected in the steepness of the deposit demand curve), banks can better insulate their profits by passing the deposit rate hike to lending rates. Figure 9: CBDC, Financial Disintermediation and the Role of Market Power [Graph illustrating the impact of market power on financial disintermediation with CBDC] Source: Adapted from Mancini-Griffoli et al (2018). Overall, financial disintermediation poses a significant risk to monetary policy implementation and transmission, as a large shift of deposits from commercial banks to the central bank could lead to volatile bank reserves and liquidity conditions, weakening the interbank market. This, in turn, could hinder the effectiveness of monetary policy tools, such as interest rate adjustments, in influencing economic activity. Additionally, prolonged deposit disintermediation could weaken the credit channel, as banks may have fewer funds available for lending. c) The challenge posed by e-Naira transaction limits: By design, as earlier indicated, the e-Naira is accessible to all Nigerians based on a tiered Know-Your-Customer (KYC) structure, which sets limits on their daily transactions and cumulative balances. While this structure is intended to mitigate the risk of bank runs, it could unintentionally impair the effectiveness of e-Naira-based transactions and hinder its system-wide adoption. Excessively cautious limits could dilute the monetary policy benefits of the e-Naira, such as better money tracking, improved velocity, and the easier implementation of targeted interventions. This is because, at the point of each transaction, the recipient's cumulative ceiling would always have to be NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 observed for successful payments to take place. The CBN thus faces a trade-off between setting limits to mitigate risks (e.g., bank runs) and ensuring that the e-Naira remains practical for everyday and high-value transactions. If the limits are set too low, the e-Naira may fail to achieve its intended role of enhancing payment efficiency. To maintain the effectiveness of the payment system, the CBN may be compelled to further set these ceilings sufficiently high enough to accommodate customary transactions, if e-Naira-based payments are not to be rejected or refused. One potential solution to overcoming this could be to explore a feature in the e-Naira wallet that automatically transfers any excess holdings of the e-Naira into the bank account connected to such a wallet51. However, while the approach could ensure transaction fluidity and compliance with limits, it presents another challenge: it could disproportionately affect the unbanked or underbanked population, who may lack sufficient access to bank accounts to manage these excess balances. This would create additional barriers to achieving financial inclusion a key goal of the e-Naira initiative – and undermine the CBN's ability to use the e-Naira to influence monetary aggregates across all sectors, particularly in the informal economy. Ultimately, limited adoption of the e-Naira, due to transaction restrictions or other operational constraints, may restrict the CBN's ability to use it as a tool for monetary policy transmission. If a significant portion of the population continues to rely on traditional payment methods or cash, the broader economic and policy objectives of the e-Naira could remain unfulfilled. d) Cyber Security Risks: While the CBN may have taken necessary steps to ensure that the financial system stability is not affected by the introduction of the e-Naira, the fact remains that the e-Naira, like every other digital currency, carries potential risks for cyber security, operational resilience, and financial integrity and stability. This risk could become substantial once the e-Naira becomes a crucial payment system, both for domestic and international transactions. As technology continues to advance, the activities of modern-day cyber criminals are also growing at a rapid pace. Any e-Naira cybersecurity breach could come with large negative externalities on other activities of the Bank, due to reputational effects52, affecting its credibility not only in managing the e-Naira but also in broader monetary and financial stability roles. Reduced trust in the CBN could lead to diminished effectiveness of policy announcements and measures, such as interest rate changes or open market operations, as stakeholders might question the institution's overall competence. As the e-Naira is equally designed to facilitate international transactions, any breach could have cross-border implications, exposing the global financial system to risks tied to Nigeria's digital currency infrastructure. A global reputational loss could lead to reduced foreign confidence in Nigeria's 51 Such a function is being considered in the Bahamas' Sand Dollar (see Soderberg, 2022). 52 The reputational risks could also arise from any system failure of the e-Naira technology, and if, for instance, the e-Naira is not considered to be sufficiently user-friendly. The extent to which such public criticism of the Bank would influence the Bank's credibility and reputation is an open question. In our survey of users' experience of the e-Naira, the overall rating of the e-Naira by 155 of the respondents was low, at 2.51 on a scale of 1 to 5. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 monetary policy framework, complicating the CBN's efforts to attract foreign investments and stabilize exchange rates. To avoid any reputational damage, the central bank would therefore have to transition from being a regulator of financial institutions into becoming ‘another commercial bank' by being fully active along several steps in the payment value chain, directly interfacing with end-users, building front-end wallets and constantly deepening its familiarity with emerging technologies. Operating as a “commercial bank” in managing the e-Naira could blur the central bank's traditional role, potentially complicating its policy objectives. There would be a need, therefore, to clearly delineate the CBN's dual role as regulator and e-Naira operator to avoid conflicts that could dilute its monetary policy focus, and build robust systems for real-time monitoring and response to cyber incidents, ensuring that breaches do not cascade into larger systemic risks. e) Personal Privacy: Concerns about personal privacy in central bank digital currencies (CBDCs), such as the e-Naira, raise critical questions about their design, adoption, and broader monetary implications. From a technical perspective, fiat money provides some level of privacy or anonymity that may prove difficult to replicate in its digital version without inheriting the same challenges associated with private cryptocurrencies. Notably, the e-Naira's lack of anonymity could bring some additional advantages to the monetary system with respect to the fight against money laundering and financing of illicit activities (see Rogoff, 2016). By enabling traceability, the CBN can gain deeper insights into transaction flows and economic activities, enhancing its ability to monitor and manage the money supply. This could further strengthen financial integrity and improve compliance with anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations, reinforcing the monetary system's credibility and stability. However, the knowledge that every e-Naira-based transaction is not anonymous may work against its general acceptability or adoption and drive further interest in risky cryptocurrencies, with obvious implications for financial system stability and complications for monetary policy implementation53 (see Raskin & Yermack, 2016; Bech & Garrat, 2017; BIS, 2018). If significant segments of the economy opt out of the e-Naira and move toward cryptocurrencies or informal cash systems, the fragmentation could weaken the monetary transmission mechanism and destabilise the financial system. Anonymity issue could also pose a challenge to the financial inclusion objective of the e-Naira: non-anonymous payment systems often require formal identification, such as BVN (Bank Verification Number) or email addresses, which are difficult for many unbanked individuals, particularly in rural areas, to obtain. This could create barriers for the underbanked population, preventing their integration into the formal financial system and reducing the scope for inclusive monetary policy initiatives. 53 Increased reliance on unregulated digital currencies could reduce the CBN's ability to control money supply and implement stabilization measures effectively. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Another major concern related to this is the amount of authority that central bank digital currency grants to the government, by creating a ‘super-state' capable of full monitoring of all individual transactions (Fung & Halaburda, 2016). This perception could erode trust in the central bank and reduce the acceptability of the e-Naira, particularly among individuals and businesses concerned about financial privacy. Monetary policy is reliant on public confidence in the central bank's neutrality and competence. If concerns about surveillance dominate public discourse, it could reduce the willingness to adopt the e-Naira, undermining its effectiveness as a monetary policy tool. To enhance its usage, therefore, the e-Naira would need to strike an appropriate balance between safeguarding the rights of consumers to privacy and affording the transparency necessary to deter criminal activities. A well-calibrated approach to privacy could improve public trust in the e-Naira, expanding its usage and effectiveness as a platform for direct monetary interventions, such as digital cash transfers. For instance, implementing tiered privacy levels—where low-value transactions maintain a degree of anonymity, while high-value transactions require full transparency—could enhance adoption while preserving financial integrity.
5. Conclusion and Policy Strategies Interest in the CBDC project is growing across the world, but actual adoption and experimentation remain very much in its infancy. Essentially, the CBDC pathway is uncharted terrain in the financial system framework, raising both potential opportunities and considerable challenges. We believe there are prospects in fostering financial inclusion, enabling seamless direct public transfers to vulnerable groups, combating illicit transactions and discouraging tax evasions, amongst others. From the monetary policy perspective, an interest-bearing e-Naira could offer an additional tool for monetary policy transmission, particularly if the use of cash eventually becomes obsolete in the long run. However, a non-interest-bearing retail CBDC like the e-Naira could lead to a higher effective lower bound and lower the policy space for monetary policy manoeuvre. Beyond this, there are also implications for the overall financial stability as it relates to financial disintermediation, risks of systemic bank runs, cybersecurity, among others. These associated risks to the financial system and implications for monetary policy would, however, depend largely on the scale of adoption of the e-Naira, which is currently lower than expected. Against this backdrop, this paper is of the view that the CBN, as the regulator of financial institutions, the Banker to the banks and the government, may need to continue to carefully re-appraise, from time to time, the risks and benefits of the e-Naira, particularly on monetary policy, financial system stability and the macroeconomy. Most importantly, the bank must put adequate and comprehensive risk management strategies in place to avoid any reputational risk from the introduction of the e-Naira. It should also be noted that, as a new payment platform, the public understanding of the benefits of the e-Naira vis-à-vis other existing payment solutions is justifiably low. There appears to be a huge information gap and apathy concerning the e-Naira among Nigerians, both in the urban and rural areas. The fact that most shops are not using the e-Naira is a critical barrier to its widespread NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 adoption. Adoption will most likely be successful if the e-Naira fulfils unmet user needs, achieves network effects and is implemented with the use of existing, accessible technology and infrastructure. Hence, the additional incentives in using the e-Naira over other payment methods, from the user's point of view, must be fully recalibrated and communicated to engender the buy-in of the public and other critical stakeholders like the ODCs and merchants. Pricing and ease of use are other critical factors for consumers, as well as perceived security and trust, and interoperability between payment systems. In many cases, the Bank may need to deepen its partnership with private firms with good reputations in financial technologies and capabilities to build e-wallets, push the bounds of e-Naira technology and add more features that meet the needs of users. Additionally, the CBN should conduct focused outreach and training programs to educate merchants on the benefits of the e-Naira, addressing any concerns about its usability and security. References Akpan, U. & Ituen, I. U. (2024). Balancing the Risks and Benefits of CBDC in Nigeria, CBN Bullion, 48(2): 18-29, April-June. Agarwal, R. and M. Kimball (2015). Breaking through the Zero Lower Bound. IMF Working Paper 15/224. Agur, I. (2018). Central Bank Digital Currencies: An Overview of Pros and Cons, in Ernest G. and D. Masciandaro (eds): Do We Need Central Bank Digital Currency? Economics, Technology and Institutions, 2018/2 SUERF Conference Proceedings. A Joint Publication with the Bocconi University and BAFFI CAREFIN. Auer, R., J. Frost, L. Gambacorta, C. Monnet, T. Rice and H. S. Shin (2021). Central Bank Digital Currencies: Motives, Economic Implications and the Research Frontier, BIS Working Papers, No. 976. Bank of England (2017). 'Digital Currencies'. http://www.bankofengland.co.uk/research/Pages/onebank/cbdc.aspx. Accessed July 22, 2023. Bank of International Settlements (2018). Central Bank Digital Currencies, Basel Committee on Payments and Market Infrastructures Publication, March 2018. Bech, M. and R. Garratt (2017). Central Bank Digital Cryptocurrencies. BIS Quarterly Review, September 2017. Beniak, P. (2019). Central Bank Digital Currency and Monetary Policy: A Literature Review. MPRA Paper No. 96663, available at https://mpra.ub.uni-muenchen.de/96663/ Boar, C. and A. Wehrli (2021). Ready, Steady, Go? – Results of the third BIS Survey on Central Bank Digital Currencies, BIS Working Papers, No. 114. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Central Bank of the Bahamas (2019). Project Sand Dollar: A Bahamas Payments System Modernisation Initiative, Sand Dollar White Paper, Central Bank of the Bahamas. Central Bank of Nigeria (2021). Regulatory Guidelines on the e-Naira, October 25, https://www.cbn.gov.ng/Out/2021/FPRD/eNairaCircularAndGuidelines%20FINAL.pdf Fernandez de Liz, S. (2018). Central Bank Digital Currencies: Features, Options, Pros and Cons. In Ernest G. and D. Masciandaro (eds): Do We Need Central Bank Digital Currency? Economics, Technology and Institutions, 2018/2 SUERF Conference Proceedings. A Joint Publication with the Bocconi University and BAFFI CAREFIN. Federal Reserve Bank (2022). Money and Payments: The US Dollar in the Age of Digital Transformation, Research and Analysis 0122. A Publication by the Federal Reserve Board. Fung, B.S.C and H. Halaburda (2016). Central Bank Digital Currencies: A Framework for Assessing Why and How, Bank of Canada Staff Discussion Paper 2016-22. Goodfriend, M. (2016). The Case for Unencumbering Interest Rate Policy at the Zero Lower Bound. Paper presented at the August 2016 Jackson Hole Conference. Gurtler, K., N. Truels, K. Rasmussen, S. Morten (2017). Central Bank Digital Currency in Denmark? Danmarks Nationalbank Analysis, December 2017, No. 28 https://www.nationalbanken.dk/en/publications/Documents/2017/12/Analysis%20-%20Central%20bank%20digital%20currency%20in%20Denmark.pdf GSMA (2023). The State of the Industry Report on Mobile Money 2023. Bill & Mellinda Gates Foundation, https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2023/04/GSMA-SOTIR-2023_Web-1.pdf International Monetary Fund (2019). The Bahamas: Financial Sector Assessment Program. Technical Note on Financial Inclusion, Retail Payments and SME Finance, IMF Country Report, No19/201. Jiang, J. and L. Karman (2021). Background and Implications of China's Central Bank Digital Currency: E-CNY. Available at SSRN: http://dx.doi.org/10.2139/ssrn.3774479 Kiff, M. J., J. Alwazir, S. Davidovic, A. Farias, A. Khan, T. Khiaonarong, M. Malaika, H. Monroe, N. Sugimoto, H. Tourpe, and P. Zhou (2020). A Survey of Research on Retail Central Bank Digital Currency. IMF Working Paper, WP/20/104. Keynes, J. M. (1936). The General Theory of Employment, Interest and Money, Macmillan, London. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 Mancini-Griffoli, T., M. S. Martinez-Peria, I. Agur, A. Ari, J. Kiff, A. Popescu and C. Rochon (2018). Casting Light on Central Bank Digital Currency, IMF Staff Discussion Note 18/08, November. Norges Bank (2018). Central Bank Digital Currencies, Norges Bank Paper No. 1/2018. Panetta, F. (2018). 21st Century Cash: Central Banking, Technological Innovation and Digital Currencies. In Ernest G. and D. Masciandaro (eds): Do We Need Central Bank Digital Currency? Economics, Technology and Institutions, 2018/2 SUERF Conference Proceedings. A Joint Publication with the Bocconi University and BAFFI CAREFIN. Pichler, P. and M. Summer (2018). Digital Money, Cryptocurrencies and Central Banks. In Ernest G. and D. Masciandaro (eds): Do We Need Central Bank Digital Currency? Economics, Technology and Institutions, 2018/2 SUERF Conference Proceedings. A Joint Publication with the Bocconi University and BAFFI CAREFIN. Raskin, M. and D. Yermack (2016). Digital Currencies, Decentralized Ledgers and the Future of Central Banking, NBER Working Paper 22238. Rogoff, K. (2016). The Curse of Cash, Princeton University Press. Skingsley, C. (2016). Should the Riksbank issue e-Krona? Speech at FinTech Stockholm 2016, 16 November. Soderberg, G (2022). Behind the Scenes of Central Bank Digital Currency: Emerging Trends, Insights, and Policy Lessons: IMF Fintech Notes, Washington DC. Sveriges Riksbank. (2017). E-krona project, report 1, September. Retrieved from https://www.riksbank.se/en-gb/payments--cash/e-krona/e-krona-reports/e-krona-project-report-1/ Sveriges Riksbank (2018). Riksbank e-Korna Project, Report 2, October. https://www.riksbank.se/en-gb/payments--cash/e-krona/e-krona-reports/e-krona-project-report-2/ Sveriges Riksbank. (2020). Riksbank e-krona pilot. Retrieved from https://www.riksbank.se/globalassets/media/rapporter/e-krona/2021/e-krona-pilot-phase-1.pdf Tolle, M. (2016). Central Bank Digital Currency: The End of Monetary Policy as we know it? Bank Underground, blogpost, 25 July. Appendix: Sample of the Questionnaire Instruction: The survey will take approximately 7 minutes to complete. The survey intends to examine the impact of e-Naira on financial inclusion in Nigeria. Please kindly provide your objective answers to the questions. Be assured that all information will be treated confidentially and strictly for this research purpose
6. Age: 18-25 ( ), 26-45 ( ), 46-65 ( ), 66 and above ( ). NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4
7. Gender: Male ( ) Female ( )
8. Employment Status: Permanent full-time job ( ), Self-employed ( ), Student/unemployed/retired ( ), Others (not listed) ( )
9. If you are employed, what is the organization's main activity? Finance/banking ( ), Education ( ), Manufacturing ( ), Agriculture ( ), Others ( )
10. What is your average income per month (in Naira): Less than 10,000 ( ), Between 10,000 to 29,000 ( ), Between 30,000 to 60,000 ( ), Above 60,000 ( )
11. What is the highest level of your education: FSLC ( ), WAEC/SSCE/GCE or equivalent ( ), OND ( ), Bachelor Degree/HND ( ), Post-graduate (PGD/MSc/PhD) ( ).
12. How would you describe your present location? Rural ( ), Suburban ( ), Urban ( )
13. Do you trade in cryptocurrency? Yes ( ), No ( ), Can't Answer ( )
14. Please kindly indicate the option that best describes your objective opinion for each of the statements below54. a. I am aware of the central bank's digital currency (the e-Naira) b. I have an Android phone c. I have an e-Naira wallet successfully installed on my Android phone d. In the last 6 months, I have received money into my e-Naira wallet e. In the last 6 months, I have transferred money or made payments using my e-Naira wallet f. I enjoyed using the e-Naira frequently for my financial transactions g. I have an account in a financial institution in Nigeria h. I have a mobile banking app of other financial institutions on my phone i. In the last 6 months, I have carried out transfers with my mobile bank app j. I enjoyed using the e-Naira for my financial transactions more than other mobile bank apps k. I have an ATM/Debit Card and I use it more frequently for my financial transactions, in the last 6 months l. I have an idea about Internet Banking m. In the past 6 months, I have made payments on bills or bought things online using the internet banking services n. The e-Niara has significantly improved my access to financial services within and outside Nigeria o. The e-Naira has offered me better financial services than other products p. I have successfully carried out cross-border transactions using the e-Naira
15. If you are yet to use the e-Naira for your daily financial transactions, which of the following best describe your reasons? Select all that apply, please. a. I don't understand how to use it b. I tried using it but stopped because the process is cumbersome c. It is not interest-bearing like cryptocurrency d. I do not need the e-Naira because I am already comfortable with other financial products like my ATMS/POS mobile operators e. I couldn't complete the installation process on my phone f. I don't believe it is useful for me g. I find it difficult to make payments through the e-Naira h. It does not offer all the features that suit my needs 54 There were 5 Likert scale options for each of the questions for respondents to tick, namely strongly agree, agree, disagree, strongly disagree, and neutral. This applies to questions 9 to 11. NDIC QUARTERLY JOURNALSEP/DEC 2024VOLUME 39, NUMBER 3 & 4 i. I don't think it is secure and safe for me j. I am afraid of incurring unnecessary transaction costs k. The e-Naitra is not yet accepted as a means of payment in shops/stores and other outlets l. Whenever I buy something, I prefer paying in cash or POS m. I have a lot of unresolved complaints from the service provider n. Others (Please specify)
16. If you do not have an account in any financial institution, which of the following best describes your reason? Select all that apply, please a. Because financial institutions are too far away from me b. Because financial services are too expensive (charges and fees) c. Because someone else in my family already has an account d. Because I do not have the necessary documentation (e.g. utility bills, national ID card, driver's license, PHCN bills, etc) e. Because I have no need for financial services at formal institutions f. Because I do not trust financial institutions g. I do not know what it takes to open an account h. Because I prefer the informal financial system (Esusu, Adashi, Etibe, etc)
17. If you have been using the e-Naira in the past 6 months, how would you describe your experience? Excellent ( ), Very good ( ), Good ( ), Poor ( ), Very Poor ( ), I have not use the e-Naira ( )
18. In a five-star rating scale, with 1 representing the lowest and 5 the highest, how would you rate your experience with the e-Naira? 1( ) 2( ) 3( ) 4( ) 5()
19. In what ways do you think the CBN can foster financial inclusion in Nigeria through the e-Naira? Please freely share your thoughts.