Nigeria below IMF targets despite CBDC

As the continent’s largest economy, Nigeria has put in place several measures to boost financial inclusion. After fighting cryptocurrencies, the country launched a digital currency from the Central Bank in October 2021. More than a year later, these measures have not boosted financial inclusion, according to the International Monetary Fund. In addition, the IMF notes the rising inflation rate, the continued shortage of foreign currency and speculation in the foreign exchange market. Further evidence that the CBDC is very limited in many respects.

36% of Nigerians excluded from financial services

As part of its annual consultations, the International Monetary Fund (IMF) conducted an economic assessment mission to Nigeria. The assessment report published at the end of this assessment mission notes some salient points!

In terms of financial inclusion, the IMF notes a steady but slow progress in Nigeria.

The report notes that Nigerians without access to financial services represent 36% of the country’s population. This is well beyond the financial inclusion targets.

Nigeria continues to fall short of its inclusion targets, especially in terms of access to financial products
 The financial exclusion rate at 36% remains high.

IMF Report

To strengthen financial inclusion, the International Monetary Fund has made three recommendations to the Nigerian authorities:

  1. Increase the number of bank agents in rural areas;
  2. Increasing the number of banking agents in rural areas; Strengthening more targeted training on the use of financial products;
  3. Accessibility of the eNaira (Nigeria’s CBDC) to the unbanked population.

Low inclusion is not the only indicator of Nigeria’s poor economic health. The IMF also notes rising inflation and high market speculation.

Rampant inflation and market speculation

According to the IMF, the Nigerian economy has been hit hard by inflation this year. Despite output growth of 3.4 percent in the second quarter of 2022, inflation in the country reached 21.1 percent in October 2022. This had not happened for 
 17 years.

This high inflation has led to higher prices in the market.

Another consequence of this high inflation is the diversification of the exchange rate in the market. Indeed, the Central Bank of Nigeria sets the value of the U.S. dollar at around 450 Naira. However, in practice, many Nigerians have to pay up to 900 naira for their greenback.

To move toward a unified exchange rate, the IMF is recommending that the Central Bank of Nigeria withdraw from the foreign exchange market in favor of the banks. This recommendation may not be well received by the CBN. Indeed, the Central Bank of Nigeria has taken conservative anti-crypto measures. For the most part, these measures have not been beneficial to the country’s economy and its citizens.

Conservative Central Bank of Nigeria sells off Nigeria’s economy

In recent months, actions taken by the Central Bank of Nigeria have largely harmed the country’s economy.

Most notably, in February 2021, the CBN asked banks in the country to freeze the accounts of Bitcoin users in the country. These restrictions have negatively affected Nigeria’s economy without compromising the adoption of the cryptocurrency.

In fact, in a report published in partnership with the UN and the World Bank, the OECD says that restrictions on cryptocurrency users in Nigeria have led to a reduction in foreign direct investment (FDI) in fintechs.

Funny in a country where this sector is a catalyst for jobs and economic opportunities for millions of the youth. The report also states that cryptocurrency users in Nigeria have been circumventing the restrictions of the Central Bank of Nigeria. They have mostly resorted to non-state-controlled means of access. As a result, this has resulted in significant tax losses for the country.

Another inefficient and dangerous decision by the Central Bank of Nigeria was the launch of the eNaira, the country’s digital currency, in October 2021.

One of the objectives of the CBDC was to enhance financial inclusion in the country.

The glaring failure noted today by the IMF was predictable.

In August 2022, ten months after the launch of the Central Bank of Nigeria’s digital currency, only 840,000 people were using the eNaira. That’s only about 1 % of the country’s adult population.

Paradoxically, Nigerians’ interest in bitcoin is at an all-time high. According to a survey by Kucoin, as many as 33.4 million Nigerian adults are cryptocurrency holders. That’s 35 percent of the country’s adult population, far behind the 1 percent of those who use eNaira.

Financial inclusion in Nigeria could have been boosted if the country’s authorities had integrated cryptocurrency into the economy instead of launching a CBDC. Rather than fighting Bitcoin, Nigeria should fight the flaws in its currency that make the crypto popular. These include inflation, difficulties in transferring funds and limited access to financial services. Until the Naira and its CBDC improve, Nigerians will turn to crypto.