A recent report has raised alarm bells regarding Nigeria’s central bank digital currency, eNaira, despite its success in addressing the country’s financial inclusion gap.

Launched nearly two years ago, eNaira has made strides, but the report, titled “Economics of Digital Currency” and obtained by reporters warns about potential stability risks due to the conversion of bank deposits into eNaira.

The report reveals that since its inception, the conversion of bank deposits to eNaira has shown robust monthly growth of 78.3%, totaling approximately N1.66 billion ($2.1 million).

However, the report notes that this has led to eNaira in circulation representing a small fraction of the average banking system liquidity, reaching highs of 0.2% in specific months.

ALSO READ: Senate rejects CBN loans, issues warning to Tinubu

One significant concern highlighted in the report is that funds converted into eNaira are held within wallets under the control of the Central Bank of Nigeria, making them unavailable for lending activities by commercial banks.

The CBN had minted N2 billion in eNaira by December 2021, and this, coupled with challenges in the eNaira’s issuance and exchange processes, has raised discussions within the financial sector.

The report also points out that the slow adoption rate among individual users has hindered eNaira’s growth, with only 10,420 active consumer wallets.

Although there has been an improvement, with 187,190 wallets activated for use by July 2022, challenges persist in achieving broader eNaira adoption.

Additionally, the report highlights potential negative impacts on banks’ profitability due to reduced non-interest income and increased cyberattack risks associated with eNaira.

While eNaira has made progress in addressing financial inclusion, these concerns indicate the need for careful monitoring and adjustments to ensure its long-term success without jeopardizing financial stability.