## Nigeria’s eNaira, One Year After

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### Context and motivation and launch objectives
- CBDCs have become prominent amid global shifts toward cashless economies and the expansion of digital assets; for Sub‑Saharan Africa (SSA) CBDCs are seen as having powerful potential given financial inclusion and remittance challenges.
- Nigeria launched the eNaira on October 25, 2021, becoming the second country in the world to launch a fully public CBDC.
- CBN‑stated launch motivations:
  - Increase financial inclusion:
    - Initially wallet access limited to people with bank accounts; expanded in August 2022 to anyone with a mobile phone even if they did not have a bank account.
    - Many people in Nigeria do not have bank accounts: 38 million people; 36 percent of the adult population.
    - High cellphone penetration suggested providing eNaira access to those with phones and no bank accounts could increase financial inclusion and facilitate social transfers.
  - Facilitation of remittances:
    - Nigeria received $24 billion in remittances in 2019 (5.3% as a percent of GDP).
    - IMTOs charge between 7.8% and 8.7% per transaction.
  - Reduced informality:
    - Nigeria’s informal economy amounts to transactions equivalent to over half of GDP and 80 percent of employment.
    - eNaira is account-based and transactions are in principle fully traceable, potentially bringing greater transparency to informal payments and strengthening the tax base.

### eNaira design features and operational model
- Legal and operational status:
  - eNaira is a liability of the Central Bank of Nigeria (CBN), like physical cash; it is a claim on CBN.
  - Can be owned and used by both wholesale (banks) and retail (merchants and individuals) clients using electronic wallets.
  - Retail‑side transactions are intermediated: financial institutions (mainly banks) handle exchanges between CBDC and cash or deposit holdings; CBN transacts directly with financial institutions (two‑tier/intermediated model).
- Technology stack and DCMS:
  - DCMS developed by Bitt Inc. uses Hyperledger Fabric as the underlying transaction network or ledger.
  - DCMS provides differentiated wallets; some financial institution wallets can request new issuance transactions from CBN; others execute deposit or cash to CBDC exchanges.
  - Transactions are executed through DCMS applications or APIs; DCMS Numa queues and submits transactions to Hyperledger Fabric to be settled in real time; Hyperledger Fabric nodes verify and append transactions to the ledger.

### Tiered wallet system and AML/CFT controls
- Wallet tiers and illustrative limits (preserved exactly):
  - Tier 0 (Retail, including people without bank account):
    - Requirement to open eNaira wallet: Phone number
    - Identity test: No identify information required except for phone number
    - Illustrative Limits: Daily transaction limit (N20,000); Balance limit (N120,000)
  - Tier 1 (Retail, including people without bank account):
    - Requirement to open eNaira wallet: Phone number (national id number verified)
    - Identity test: Basic identity information (e.g., photo, name, date of birth); no evidence required; no verification required
    - Illustrative Limits: Daily transaction limit (N50,000); Balance limit (N300,000)
  - Tier 2 (Retail, people with bank account):
    - Requirement to open eNaira wallet: Bank verification number (BVN)
    - Identity test: Basic identity information (e.g., photo, name, date of birth); evidence required; customer to be verified through official databases
    - Illustrative Limits: Daily transaction limit (N200,000); Balance limit (N500,000)
  - Tier 3 (Retail, people with bank account):
    - Requirement to open eNaira wallet: Bank verification number (BVN)
    - Identity test: Full identify information and evidence (including proof of address and physical presence in the address) in pursuant to CBN’s AML/CFT Regulation 2009. Risk-based verification done.
    - Illustrative Limits: Daily transaction limit (N1,000,000); Balance limit (N5,000,000)
  - Merchant:
    - Requirement to open eNaira wallet: Existing bank account, TIN, BVN of MD/CEO, email address, business certificate
    - Identity test: Full KYC requirement in pursuant to CBN’s AML/CFT Regulation 2009.
    - Illustrative Limits: No limit
- Privacy and AML/CFT considerations:
  - Account‑based blockchain makes transactions traceable to identified individuals or businesses if needed.
  - Retail wallets subject to transaction and balance ceilings based on tiered KYC system (prevailing AML/CFT backbone since 2013) to mitigate deposit disintermediation and AML/CFT risks.
  - Existing AML/CFT regulatory framework may not be sufficient to completely address new risks stemming from CBDC; CBN should vigilantly monitor these.

### Technology architecture, security, and limits (Appendix I)
- Hyperledger Fabric: described as “the modular blockchain framework and de facto standard for enterprise blockchain platforms”; permissioned DLT with customizable powers/permissions—currently all nodes are computers in various CBN locations.
- Consensus and performance:
  - Consensus mechanism can be considered Byzantine Fault Proof Tolerant (BFT).
  - DLT advantages: relative strength against hacking vs. host‑client models; mitigates single point of failure via geographically dispersed operators.
  - DLT technical limitations: speed of processing and sealing a block can limit payment finality; so far the eNaira system has not faced latency problems, but Nigeria’s population size and transaction density may require careful adjustment of system architecture as usage grows.
  - UMA and NUMA architectures referenced as context for memory and scalability trade‑offs.
- Operational notes: DLT can lead to undesirable decentralization in governance; permissioned DLT (Hyperledger Fabric) is less prone to uncontrolled decentralization.

### Year one adoption, usage, and interpretation
- Wallet downloads and merchant uptake:
  - 25 days to reach 500,000 downloaded wallets.
  - Another 63 days to go from 500,000 units to 600,000 units.
  - Another 143 days to go from 600,000 units to 700,000 units.
  - As of end‑November 2021, total retail eNaira wallets ≈ 860,000.
  - This is just 0.8 percent of Nigeria’s active bank accounts.
  - Merchant wallet downloads had reached about 100,000 in end‑June (≈ one eleventh of merchants with POS terminals).
- Transaction activity:
  - Average number of eNaira transactions since inception ≈ 14,000 per week—only 1.5 percent of the number of wallets.
  - Implies 98.5 percent of wallets, for any given week, have not been used even once.
  - Average weekly value of eNaira transactions ≈ 923 million naira per week—0.0018 percent of the average amount of M3 during this period.
  - Average value per one transaction ≈ 60,000 naira.
  - Total number of eNaira transactions since inception (around 802,000) is less than the number of eNaira wallets—implying many wallets have not been used more than once after opening.
- Interpretation of slow adoption:
  - Slow take‑up consistent with CBN’s ‘phased approach’ (initially only banked customers, onshore uses only).
  - eNaira did not present tangible benefits to most wallet holders early on due to limited merchant acceptance and available alternatives (debit card, mobile banking apps).
  - As a legal tender network product, universal acceptance cannot be imposed on the public; adoption faces network externality dynamics and competition with incumbent networks (e.g., mobile money).
  - Public trust in monetary system and technological reliability are barriers that must be tackled to prevent substitution into foreign fiat currencies and crypto assets.

### CBN Phase 2 expansion and operational measures
- Phase 2 expansions:
  - Coverage extended to people without bank accounts (with mobile phones and KYC) and to those without internet access (through USSD technology).
  - People without bank accounts may open an eNaira wallet by providing their national ID number (NIN).
  - Loading methods: cash‑in via agency banking network, moving mobile money, or receiving eNaira from a third party.
- Promotion measures:
  - Encouraging major supermarkets and hotels to join merchant network.
  - Providing stipend to CBN staff through the eNaira.
  - Hosting developer Heckathons for promotion and discovery of use cases.
- Remittances: expansion of eNaira use for remittances is unlikely in near term; modalities under consideration.

### eNaira as a network product: tipping points, strategies, and integration with mobile money (Box 2 and Annex II)
- Network externalities and equilibria:
  - Stylized network model shows potential for three equilibria: low adoption equilibrium (E_l), tipping point equilibrium (E_t) at N_t*, and high adoption equilibrium (E_h).
  - If starting network N_A < N_t*, dynamics drive N toward E_l; if starting network N_B > N_t*, dynamics drive N toward E_h.
  - Evolution of N is path dependent; an initial mass adoption push may be necessary to cross the tipping point.
- Strategic operational choices with mobile money providers (MMPs):
  - Complementary model:
    - CBN refrains from building its own retail access network; MMPs onboard clients or integrate via APIs.
    - CBDC wallets provide a risk‑free safekeeping option while MMPs remain main transaction accounts; ceilings limit substitution.
  - Substitutive model:
    - CBN establishes a direct retail presence (e.g., agent networks) to let eNaira replace mobile money.
    - This risks industry reshuffle, governance risks, and distortions from government “picking winners”; central banks may struggle to replicate all retail service functions of MMPs.
  - In practice, Phase 2 eNaira onboarding for the unbanked already occurs with identity verification and KYC checks conducted by MMPs for mobile money customers.
  - APIs defined as contracts between applications that “define how the two communicate with each other using requests and responses.”
- Interoperability and merchant acceptance:
  - eNaira could reduce interoperability costs among fragmented MMPs and improve merchant acceptance as a central bank product with potential for universal acceptance.
  - Example flow: an MMP A customer could transfer to an eNaira wallet and then wallet‑to‑wallet transfer to an MMP B subscriber, bypassing complex interoperability arrangements.
  - Fee dynamics: transfers from mobile money to eNaira likely incur MMP charges; cash withdrawal from eNaira typically requires transfer back to mobile money and may trigger fees; transfers to another eNaira wallet are cost free unless CBN changes policy.

### Remittances: current process, potential savings, and limits (Box 3 and Annex I)
- Current stylized remittance process (example):
  - Sender in the U.S. sends $100 via an IMTO; remittance involves chains of domestic fund transfers in both sending and receiving countries, currency conversion by Nigerian respondent bank, correspondent banking relationships, and multiple intermediary fees (f1, f2, f3).
  - Exchange rate notation: e denotes exchange rate applied for buying USD; s denotes spread with USD selling rate.
  - Resulting receiver payout example: N(100 - f1 - f2)(e - s) - f3.
- Cost drivers and implications:
  - Intermediaries extract fees/spreads at multiple stages; transactions are slow and opaque to senders.
- Potential for eNaira to reduce costs:
  - Two primary options for remittance use:
    - Granting foreign IMTOs direct or indirect access to the eNaira (CBN appears to prefer direct access).
    - Using domestic remittance service providers with eNaira access to receive foreign currency online and transfer eNaira to recipients.
  - eNaira can streamline domestic in‑country transfers once funds are onshore and recipient has an eNaira wallet, potentially lowering overall transaction costs.
  - But eNaira will not remove the need for foreign exchange or simplify the sending‑country domestic transfer chain.
  - Exchange spread tends to account for about a half of overall remittance cost for Nigeria; streamlining domestic transfers could save about a quarter of total remittance cost.
    - Example calculation from World Bank data: average cost of sending $200 to Nigeria was 10.4 percent in 2020Q2, of which 47 percent (4.8 percentage points) was attributed to exchange rate spread. Assuming the rest of the cost is evenly divided between within‑border transfer costs in sender and receiver jurisdictions, about a quarter of the total cost (10.4 percent) could be saved by streamlining the domestic fund transfer process within Nigeria.

### Policy implications, operational recommendations, and risks highlighted
- Policy and operational recommendations implied by analysis:
  - Recognize eNaira as a network product: achieving a high‑adoption equilibrium likely requires a targeted strategy to reach and surpass the tipping point N_t* (mass adoption push).
  - Adopt a robust strategy beyond the CBDC core: operationalization of inclusion and remittance potential needs broader public‑private coordination and ecosystem development.
  - Carefully choose external technology provider with strong experience.
  - Design clear relationship with mobile money sector (decide between complementary vs. substitutive approaches) and define API governance to enable safe integration.
  - Monitor and strengthen AML/CFT framework and supervision given account‑based, traceable transactions and potential new risks from CBDC.
  - Prepare system architecture scaling and consider hybrid architectures or performance tuning to handle Nigeria’s population size and transaction density as adoption grows.
  - Promote merchant acceptance and provide tangible early use‑cases (e.g., stipends, merchant onboarding, developer engagement) to increase wallet activity.
- Risks and cautions:
  - Risk of substitution into foreign fiat currencies and crypto assets if public trust in monetary policy or technical reliability is weak.
  - Potential governance decentralization from DLT unless permissioning and governance structures are tightly controlled.
  - Allowing foreign IMTO direct access raises legal/regulatory and AML/CFT supervision questions (prefunding, exchange rate determination, cross‑jurisdictional arrangements).

*Source: IMF Working Paper — "Nigeria’s eNaira, One Year After" (Introduction, Appendix I, Box 2, Box 3, Annex I, Annex II).*

### Introduction ...........................................................................................................

### Introduction

### Context and motivation
- CBDCs have become prominent among central bankers against global shifts toward cashless economies and the expansion of digital assets (see Box 1).
- For Sub-Saharan Africa (SSA), CBDCs are seen as having powerful potential given the region’s financial inclusion and remittance challenges (see Annex I) and history of technology-driven leapfrogging.
- Nigeria launched the eNaira on October 25, 2021, becoming the second country in the world to launch a fully public CBDC (after the Bahamas).  
- The degree of Nigeria’s success in CBDC is important for other central banks contemplating their own CBDCs.

### eNaira launch motivations (as stated by the Central Bank of Nigeria)
- Increase in financial inclusion:
  - Initially, the eNaira wallet was provided only to people with bank accounts, but coverage was expanded in August 2022 to anyone with a mobile phone even if they did not have a bank account.
  - Many people in Nigeria do not have bank accounts: 38 million people; 36 percent of the adult population.
  - High cellphone penetration in Africa suggested providing eNaira access to those with phones and no bank accounts could increase financial inclusion and facilitate social transfers.
- Facilitation of remittances:
  - Nigeria received $24 billion in remittances in 2019 (5.3% as a percent of GDP).
  - IMTOs such as MoneyGram or Western Union charge between 7.8% and 8.7% per transaction (World Bank, Remittance Prices Worldwide).
  - The government sought to reduce remittance transfer costs by using frictionless digital money.
- Reduced informality:
  - Nigeria’s informal economy amounts to transactions equivalent to over half of GDP and 80 percent of employment.
  - eNaira is account-based and transactions are in principle fully traceable, potentially bringing greater transparency to informal payments and strengthening the tax base.

### Nigeria’s payments and fintech landscape (contextual facts)
- Nigeria is SSA’s largest economy but has had only a limited degree of success in its financial inclusion drive and lags peers in mobile money penetration, with a fragmented industry landscape.
- Mobile money market in Nigeria: 21 mobile money operators; market shares cited include Paga 51 percent, OPay 21.9 percent, MTN MoMo 15.6 percent, KongaPay 6.3 percent, PalmPay 3.1 percent.
- Nigeria has fostered a dynamic FinTech sector that has been leading digitalization of its monetary system.

### eNaira design features (overview from the launch and system)
- eNaira is a liability of the Central Bank of Nigeria (CBN), like physical cash.
- Uses a blockchain technology and is stored in digital wallets; can be used for payment transactions and is a claim on CBN.
- Can be owned and used by both wholesale (banks) and retail (merchants and individuals) clients using electronic wallets.
- Retail-side transactions (exchanging CBDC with retail clients’ cash or deposit holdings) are handled by financial institutions, mainly banks; CBN transacts directly with financial institutions.
- The eNaira retail system is intermediated or two-tiered.
- The DCMS (Digital Currency Management System) developed by Bitt Inc. uses Hyperledger Fabric as the underlying transaction network or ledger.
  - DCMS provides a variety of wallets with differentiated capabilities: certain financial institution wallets can request new issuance transactions from the central bank; others can execute deposit or cash to CBDC exchange transactions for retail and enterprise clients.
  - Transactions are executed through DCMS applications or APIs; DCMS Numa queues and submits transactions to Hyperledger Fabric to be settled in real time; Hyperledger Fabric nodes verify and append transactions to the ledger.

### CBDC taxonomy and alternative models (as referenced)
- BIS taxonomy (Auer and Boehm, 2020) identifies alternative model choices:
  - Single-tier retail CBDC: central bank directly onboards retail clients and handles all retail payments.
  - Indirect CBDC: CBDC issued only to banks, which then issue indirect CBDC (ICBDC) to their clients—ICBDC fully backed by CBDC.
  - Intermediated or two-tiered CBDC: central bank issues CBDC mainly (or only) to banks (in exchange for reserve deposits), which then handle CBDC transactions with retail clients; nonbank payment service providers may also participate.

### Paper scope and organization (as described)
- The paper takes stock of the first year of Nigeria’s eNaira launch.
- Organization:
  - Brief overview of the eNaira focusing on its design features.
  - Stock-taking of the first year focusing on slow adoption to date.
  - Analysis addressing (1) why eNaira adoption has been slow; and (2) key points of consideration for a breakthrough strategy.

*Source: IMF Working Paper — "Nigeria’s eNaira, One Year After" (Introduction section).*

### Appendix I.

### Appendix I.

### Technology and architecture
- The eNaira uses Hyperledger Fabric as its technological backbone.
- As a distributed ledger, it allows all participating nodes to keep all record of CBDC transaction through the entire history (as a blockchain), take turns to lead the assembling of a block (i.e., record of all transactions occurring during a certain time frame), independently verify the block broadcasted by the nod in charge at certain point in time, and participate in collective validation of the block via a super-majority voting.
- Notes and technical points in the source:
  - Hyperledger Fabric is described as “the modular blockchain framework and de facto standard for enterprise blockchain platforms”.
  - Hyperledger Fabric is a permissioned DLT, where powers and permissions granted to different nodes can be customized; currently all nodes in the eNaira system are computers in various CBN locations.
  - The consensus mechanism can be considered Byzantine Fault Proof Tolerant (BFT).
  - Uniform Memory Access (UMA) and Non-uniform memory access (NUMA) architectures are referenced as context for memory and scalability trade-offs.

### Security advantages and technical limitations
- Key advantages of a distributed ledger technology:
  - Relative strength against risks of hacking compared with traditional host-client computer models.
  - Mitigates single point of failure risk via multiple “operators” or “hosts” in geographically dispersed locations.
- Technical limitations and cautions:
  - Distributed ledger technology has technical limitation in the speed of processing and sealing a block—without which payment does not become final. So far, the eNaira system has not faced a latency problem, but Nigeria’s population size and transaction density may require careful adjustment of system architecture going forward.
  - Despite resilience and redundancy benefits, DLT may lead to undesirable decentralization in system governance; Hyperledger Fabric, as a permissioned DLT, is less prone to uncontrolled decentralization.
- Privacy and AML/CFT:
  - eNaira uses an account-based blockchain technology, which makes transactions traceable to identified individuals or businesses if needed.
  - Retail eNaira wallets are subject to both transaction and balance ceilings based on a tiered KYC system—the prevailing AML/CFT backbone for Nigeria since 2013—mitigating risk of deposit disintermediation and AML/CFT risks arising from CBDC.
  - Existing AML/CFT regulatory framework may not be sufficient to completely address new risks stemming from CBDC; CBN should vigilantly monitor these.
  - Merchant wallets are not subject to transaction or balance ceilings, though strict AML Compliance rules apply for collecting and verifying business information prior to obtaining a merchant wallet; merchant eNaira balances are auto-converted to the linked bank account at the end of every day.

### eNaira: Tiered Wallet System (Table 1)
- Tier 0
  - Client category: Retail (including people without bank account)
  - Requirement to open eNaira wallet: Phone number
  - Identity test: No identify information required except for phone number
  - Illustrative Limits:
    - Daily transaction limit (N20,000)
    - Balance limit (N120,000)
- Tier 1
  - Client category: Retail (including people without bank account)
  - Requirement to open eNaira wallet: Phone number (national id number verified)
  - Identity test: Basic identity information (e.g., photo, name, date of birth); no evidence required; no verification required
  - Illustrative Limits:
    - Daily transaction limit (N50,000)
    - Balance limit (N300,000)
- Tier 2
  - Client category: Retail (people with bank account)
  - Requirement to open eNaira wallet: Bank verification number (BVN)
  - Identity test: Basic identity information (e.g., photo, name, date of birth); evidence required for submitted information; customer to be verified through official databases
  - Illustrative Limits:
    - Daily transaction limit (N200,000)
    - Balance limit (N500,000)
- Tier 3
  - Client category: Retail (people with bank account)
  - Requirement to open eNaira wallet: Bank verification number (BVN)
  - Identity test: Full identify information and evidence (including proof of address and physical presence in the address) in pursuant to CBN’s AML/CFT Regulation 2009. Risk-based verification done.
  - Illustrative Limits:
    - Daily transaction limit (N1,000,000)
    - Balance limit (N5,000,000)
- Merchant
  - Client category: Merchant
  - Requirement to open eNaira wallet: Existing bank account, TIN, BVN of MD/CEO, email address, business certificate
  - Identity test: Full KYC requirement in pursuant to CBN’s AML/CFT Regulation 2009.
  - Illustrative Limits:
    - No limit

### Year One: Experience and achievement (adoption and activity)
- Wallet downloads and growth dynamics:
  - It took 25 days for the number of downloaded wallets to reach 500,000 units.
  - It took another 63 days to go from 500,000 units to 600,000 units.
  - It took another 143 days to go from 600,000 units to 700,000 units.
  - As of end-November 2021, the total number of retail eNaira wallets amounted to about 860,000.
  - This is just 0.8 percent of Nigeria’s active bank accounts.
  - Merchant wallet download had reached about 100,000 in end-June, which is about one eleventh of the number of merchants with Point-of-Sales (POS) terminals.
- Transactions and usage metrics:
  - The average number of eNaira transactions since inception amounts to about 14,000 per week—only 1.5 percent of the number of wallets out there.
  - This implies 98.5 percent of wallets, for any given week, have not been used even once.
  - The average value of eNaira transaction has been 923 million naira per week—0.0018 percent of the average amount of M3 during this period.
  - The average value per one transaction has been 60,000 naira.
  - The total number of eNaira transactions since inception (around 802,000) is less than the number of eNaira wallets—implying that the bulk of current wallet holders have not used their wallets more than once after opening them.
- Interpretation and constraints on adoption:
  - Slow take-up is not unexpected given CBN’s ‘phased approach’—initially granting access only to customers with bank accounts and restricting eNaira transactions to onshore uses only.
  - Until recently the eNaira has not presented tangible benefits to most wallet holders due to limited merchant acceptance and availability of alternative payment methods (e.g., debit card, mobile banking apps).
  - eNaira is legal tender but universal acceptance cannot be imposed on the public; it is a network externality product and competes with established incumbent networks (e.g., mobile money).
  - Weakness in public trust on Nigeria’s monetary system and eNaira’s technological reliability are important barriers that need to be tackled to counter substitution pressures into foreign fiat currencies and crypto assets.

### CBN actions and Phase 2 expansion
- CBN moved to phase 2, expanding eNaira coverage to:
  - People without bank account (but with mobile phones and KYC).
  - Those without internet access (through USSD technology).
- Operational and access details:
  - People without bank accounts may open an eNaira wallet by providing their national ID number (NIN).
  - Load eNaira balance through cash-in services provided by the agency banking network, moving mobile money, or receiving the eNaira from a third party.
- Promotion and adoption measures:
  - Encouraging major supermarkets and hotels to participate in its merchant network.
  - Providing stipend to CBN staff through the eNaira.
  - Hosting developer Heckathons for promotion and discovery of eNaira use cases.
- Remittances:
  - Expansion of usage of the eNaira for remittances is unlikely to happen in the near term; consideration is being given to its modalities.

*Source: Appendix I, wpiea2023104-print-pdf*

### Box 2. eNaira as a Network Product

### Box 2. eNaira as a Network Product

### Network externalities, tipping point, and adoption equilibria
- The eNaira is characterized as a network externality product—whose value increases with the size of the network.
- A stylized network model (Annex II) shows potential for both a high adoption equilibrium (E_h) and a low adoption equilibrium (E_l).
- A tipping point equilibrium (E_t) exists such that the eventual outcome depends on whether the adopter population N crosses the tipping point N_t*:
  - If the starting point N_A < N_t*, subsequent dynamics drive N toward the low adoption equilibrium E_l (represented by downward/blue paths in the model).
  - If the starting point N_B > N_t*, subsequent dynamics drive N along an upward spiral toward the high adoption equilibrium E_h (represented by upward/green paths).
- The evolution of N is path dependent and hinges on the starting point and any mass adoption campaign’s ability to push adopters through the tipping point.
- Model notation preserved: N′ = ∅(N) governs evolution of N; N′ represents the size of consumer h who chooses to adopt CBDC when the existing network size is N; N̿ and N represent the size of all consumers in the economy and the minimum size of the network for CBDC to attract any consumer.

### Desirable roles: financial inclusion and remittance enabler
- The eNaira project is described as a work in progress and remains in an early stage; it is technically do-able for SSA countries with relatively strong operational capacities.
- Operationalizing CBDC’s enabling potential likely requires a robust strategy that goes beyond a narrow focus on the CBDC itself.
- Selection of a good external technology provider with strong experience is essential.

### Integration with mobile payment systems (MPS) and setting the relationship with mobile money
- Integration mechanics:
  - The eNaira can be integrated into existing mobile payment systems by:
    - Allowing mobile money providers (MMPs) to onboard their clients to eNaira wallets.
    - Allowing mobile money apps to integrate eNaira wallets via APIs (Application Programming Interface).
- Two strategic relationship options with mobile money:
  - Complementary model:
    - Central bank refrains from formally acquiring its own retail access network or providing retail ancillary client services (e.g., transaction record inquiry, notifications, automatic transfer services).
    - Customers without bank accounts typically deposit cash into CBDC wallets after loading into mobile money wallets; direct CBDC access remains possible.
    - Mobile money wallets remain the main transaction accounts because CBDC wallets lack convenience features; ceilings on CBDC transactions and balances further limit substitution.
    - Integration allows users to keep preferred CICO points while adding a risk-free eNaira safekeeping option to mitigate operational/fiduciary risks of MMPs and credit risks of partner banks holding pooled mobile money funds.
  - Substitutive model:
    - CBN could let the eNaira replace mobile money as the key inclusion instrument by establishing a direct retail presence (e.g., outsourcing agent networks for CICO).
    - It is difficult for central banks to directly replicate all retail service functions of MMPs; a private-public partnership could replicate these services via API access to customers’ CBDC wallets based on customer pre-approval.
    - This approach risks prompting industry reshuffle, governance risks, and distortions from government “picking winners.”
- Operational notes:
  - Nigeria’s mobile money framework does not allow Telcos to be lead initiators; models are bank-led or nonbank-led, though Telcos can participate via Payment Service Bank subsidiaries.
  - In practice, eNaira onboarding to customers without bank accounts is already occurring in the 2nd (ongoing) phase—identity verification and KYC checks are conducted by MMPs for those with mobile money accounts.
  - APIs are defined as a contract of service between applications that “defines how the two communicate with each other using requests and responses.”

### Interoperability and costs: mobile money before and after CBDC
- eNaira integration can improve merchant acceptance and reduce interoperability costs among fragmented MMPs:
  - As a central bank product, eNaira has better potential for universal merchant acceptance than any single mobile money product, providing a backup where a mobile money product is not accepted.
  - Example: an MMP A customer sending 100,000 naira to an MMP B subscriber can instead transfer funds to an eNaira wallet and then wallet-to-wallet transfer to the recipient, bypassing complex interoperability arrangements.
- Fee dynamics and user flows:
  - Transfers from mobile money to eNaira wallets are likely to incur MMP charges; cash withdrawal from an eNaira wallet will typically require a transfer back to a mobile money account and may trigger fees.
  - Transfers to a third party with an eNaira wallet are cost free unless CBN changes its fee policy.

### Use of eNaira to make remittance cheaper and faster
- CBN launched eNaira as a single-currency national CBDC; remittance use will consider two primary options:
  - Granting foreign IMTOs direct or indirect access to the eNaira:
    - Direct access: foreign IMTOs could own eNaira merchant wallets to intermediate remittances or provide wallet services to senders by transferring eNaira to designated domestic recipients.
    - Indirect access: IMTOs rely on eNaira wallet services provided by Nigerian domestic partners.
    - CBN’s preferred modality appears to be granting direct access.
  - Using domestic remittance service providers that already have eNaira access to receive foreign currency online and transfer corresponding eNaira to recipients—this presumes building new online remittance franchises, which may be challenging given IMTO dominance.
- Potential savings and limits:
  - eNaira can streamline remittance processes by eliminating some intermediated transfers within Nigeria once funds are in-country and the recipient has an eNaira wallet, potentially lowering overall transaction costs.
  - The eNaira will not remove the need for foreign exchange or simplify the sending-country domestic transfer chain.
  - Exchange spread tends to account for about a half of overall remittance cost for Nigeria; streamlining domestic transfers within Nigeria could save about a quarter of total remittance cost.
    - World Bank data example: average cost of sending 200 dollars worth of cash to Nigeria was 10.4 percent in 2020Q2, of which 47 percent (4.8 percentage points) was attributed to exchange rate spread. Assuming the rest of the cost is evenly divided between within-border fund transfer costs in sender and receiver jurisdictions, about a quarter of the total cost (10.4 percent) could be saved by streamlining the domestic fund transfer process within Nigeria.
- Literature note: cross-border CBDC use is widely expected to flatten correspondent banking layers, shorten payment chains, reduce transaction time, and facilitate increased competition among service providers.

*Source: Box 2. eNaira as a Network Product, wpiea2023104-print-pdf*

### Box 3. Remittance Process (Current): A Stylized Example

### Box 3. Remittance Process (Current): A Stylized Example

### Stylized remittance flow (transaction steps)
- Sender in the U.S. sends $100 via an IMTO (e.g., Western Union) to a receiver in Nigeria.
- Remittance process involves:
  - Chains of domestic fund transfers within both U.S. (from Sender to Bank A’) and Nigerian borders (from Bank B’ to Receiver).
  - Currency conversion (done by Nigerian respondent bank B’ in this example).
  - A correspondent banking relationship between a U.S. and a Nigerian bank (Bank B’ opening a USD correspondent account in Bank A’ and Bank A’ opening a naira correspondent account in Bank B’).
- Illustrated asset/liability ledger at key points (as shown in Figure 7):
  - Deposit at Bank A': +($100-f1-f2)
  - Deposit of Bank B: +N(100-f1-f2)(e-s)
  - Subsequent entry after final intermediary fee f3:
    - N(100-f1-f2)(e-s) - f3

### Cost drivers, settlement speed, and transparency issues
- Intermediaries extract fees/spreads at multiple stages; denoted fi (i=1, 2, 3) for fees charged by various intermediaries.
- Exchange rate notation:
  - e denotes exchange rate applied for buying USD.
  - s denotes the spread with USD selling rate.
- Fair value and de facto FX fee:
  - Fair value of the USD deposit holding X of Bank B’ would be Xe.
  - Thus Xs = Xe - X(e-s) is the de facto fee charged on FX transactions with banks’ customers.
- Practical implications:
  - Transaction is expensive because all intermediaries “take a dip” on the money.
  - Transaction is slow because foreign exchange transactions typically take days to settle.
  - Transaction is obscure because senders of small remittances are typically unaware that intermediaries deduct their fees/spreads ((f1+f2)s+f3 in this example), which generally is unnotified to the sender.

### Key ledger movements and labels from Figure 7
- Sender → IMTO → Bank A → Bank A’:
  - $100 cash sent; after initial deductions: $100 - f1
  - Bank A's deposit transferred to correspondent account of Bank B'.
  - A' notifies B'
- On entry to Nigerian banking system:
  - $100 - f1 - f2 becomes N(100 - f1 - f2)(e - s) after currency conversion by Bank B'.
  - Final deduction by intermediary f3 may apply at payout, leaving:
    - N(100 - f1 - f2)(e - s) - f3 to receiver

*Source: Author’s elaboration*

### Annex I. Sub-Saharan Africa: Financial Inclusion

### Annex I. Sub-Saharan Africa: Financial Inclusion and Remittance Challenges and CBDC

### Financial inclusion: status and CBDC implications
- Despite recent advances, SSA countries generally suffer from high levels of financial exclusion.
- Mobile money expansion represents Africa’s "leapfrog success stories", but performance varies:
  - Examples of less successful cases: Nigeria.
  - Example of negative consequence from success: excessive market concentration (e.g., Ghana).
- CBDC potential roles in SSA financial inclusion strategies:
  - Compete with mobile money (thus countering oligopolistic market powers).
  - Complement mobile money (thus helping to foster the industry).
  - CBDC provides a potential for reshaping SSA’s financial inclusion strategies.

### Remittances: costs, de-risking, and CBDC opportunities
- SSA countries generally face higher costs of cross-border remittances.
- Trend of de-risking of international money transfer operators (IMTOs) by correspondent banks due to AML/CFT compliance costs has exacerbated remittance frictions.
- CBDC characteristics relevant to remittances:
  - Digital and block chain nature could enable cross-CBDC inter-operability—without relying on correspondent banking intermediaries—offering "game-changing potential" in cross border payment.
  - Even without cross-CBDC inter-operability, CBDC may help trim layers of intermediation in current remittance processes and thus bring cost savings.
- Note (from source): "CBDC could provide such interoperability even without relying on the blockchain technology."
- Source data referenced: World Bank, Remittance Prices Worldwide.
- Specific country note: "Nigeria’s remittance cost went down significantly since Q2 2020, with CBN requiring remittances to be made in the currency of origin, which makes it inadequate for peer comparison."

### Figure-based indicators (as presented)
- Source for financial inclusion and mobile money penetration: The Global Findex Database 2021 -- World Bank.
- Definitions preserved from figure notes:
  - "Excluding high income countries."
  - "Share of account holders among adults (i.e., people with ages 15 and above)."
  - "Share of financial institution account holders among adults."
  - "Share of mobile money account holders among adults."
  - "Share of active mobile money account users (use twice or more a month) among adults."

### Annex II. A Network Model of CBDC

### Purpose and intuition
- CBDC adoption is modeled as a network product subject to network effects: utility from CBDC for each consumer increases with the size of the participant network.
- If no one else uses CBDC, it has no utility as a P2P transfer device or payment instrument.
- Network effects can generate multiple equilibria: low-adoption equilibrium ("Death Valley"), a tipping point, and high-adoption equilibrium with self-reinforcing expansion.

### Model setup (preserved technical notation and assumptions)
- Economy: continuum of consumers h ∈ [0, N̄ ].
- Consumer h’s utility from CBDC: u = f(N), where N is size of participants in the network.
- Consumer h’s reservation utility ũ_h is uniformly distributed in [u̲, ū] ∈ [0, ∞).
- Adoption decision: consumer h adopts CBDC iff u ≥ ũ_h.
- Network-size mapping: N' = Φ(N) where N' is measure of consumers who choose to adopt given network size N.
- Equilibrium N* satisfies fixed-point condition N* = Φ(N*).

### Key geometric and algebraic construction steps (as presented)
- f is increasing in N and f(0) < u̲. These assumptions:
  - Ensure positive network externality regardless of participation.
  - Ensure that if nobody participates, the network is unattractive even to lowest reservation utility consumer—critical to obtain both low and high adoption equilibria.
- Define saturation point N̄_s = f⁻¹(ū) where once N reaches N̄_s all consumers participate and N' = N̄.
- Define entry point N̲_e = f⁻¹(u̲) where N' = 0 below this point.
- h(u) denotes size of adopters when network utility is u:
  - h(u) = 0 if u ≤ u̲ and h(u) = N̄ if u ≥ ū.
  - For u in (u̲, ū) h(u) is a straight line due to uniform ũ_h distribution; algebraic form provided in source.
- The network update function Φ(N) = h(f(N)) is constructed via a four-quadrant geometric "cobweb mapping" yielding the complete graph of N' = Φ(N).

### Fixed points, stability, and dynamics
- Under condition f(0) < u̲ and saturation point f⁻¹(ū) < N̄, the model yields three fixed points where N = Φ(N):
  - E_l: low adoption equilibrium (stable).
  - E_t: tipping point (unstable).
  - E_h: high adoption equilibrium (stable).
- Stability conditions derived:
  - f′(E_t) < −1 (Φ cuts through 45-degree line from above) → E_t unstable.
  - f′(E_h) > −1 and f′(E_l) > −1 → E_h and E_l stable.
- Notation: N_t* denotes N* corresponding to the tipping point E_t.
- Path dependence:
  - If starting point N_A < N_t*, dynamics lead to low adoption equilibrium E_l.
  - If starting point N_B > N_t*, dynamics lead to high adoption equilibrium E_h.
- Policy implication implied by model: an initial push is necessary to pass the tipping point; otherwise adoption backslides to low equilibrium. Once tipping point is reached, self-reinforcing expansion tends toward full or near-full adoption.

### Appendix highlights: Digital Currency Management System and CBDC questionnaires to CBN

### Appendix 1. Digital Currency Management System
- Illustration source: Bitt Inc provided to the author.
- Legend abbreviations preserved: "App, API, MFA, KYC, TX stand for application, Application Programming Interface, Multi Factor Authentication, Know Your Customer, and transaction respectively."

### Appendix 2. CBDC questionnaires to CBN (April 2022 and October 2022)
- Primary lines of inquiry captured in the questionnaires (preserved verbatim in substance):
  - Q6: "Please provide latest figures on the number of eNiara downloads, and daily transaction value (in naira)."
  - Q7: "Our understanding is that total number of eNaira download is less than one million as of now. Is this speed of adoption in line with your expectation? If the takeoff in eNaira usage is slower than expected, what are the main impediments and what’s planned to deal with them?"
  - Q8: Questions regarding timing of next phase (expanded coverage to people without bank account and for remittance) and whether H2 of 2022 plan still stands.
  - Cross-border/remittance design questions:
    - Whether use of eNaira for remittance contemplates allowing foreign IMTOs (e.g., Western Union in London) to participate by opening eNaira wallets, onboarding remittance senders, and conducting buy/sell eNaira transactions.
    - If such wallets would be subject to the same transaction or balance ceilings as domestic retail eNaira wallets or different ceilings.
    - Whether use of eNaira for remittance would require prefunding of IMTO wallets or an alternative envisaged access process.
    - How IMTOs would determine exchange rates applied to eNaira-based remittance transactions.
    - Whether allowing foreign IMTO participation requires legal/regulatory arrangements with authorities in their jurisdictions (e.g., arrangements between central banks for home supervision, AML/CFT compliance) and whether domestic legal/regulatory amendment would be required.
  - AML/CFT and supervision concerns: "What AML/CFT related challenges are expected to arise in the second phase eNaira rollout and what’s planned to deal with these?"
  - Offline functionality prospects: "What’s the prospect of offline functionality of eNaira?"
  - Adoption and retail acceptance: "Please comment on the rate of adoption of CBDC payments in the retail sector. What could policies be to allow the population to make purchases via eNaira in brick-and-mortar and internet stores?"
  - Complement/substitute question: "Do you perceive eNaira to be a complement or substitute to other forms of digital money? Do you expect eNaira to replace e-money holdings to a certain extent or rather to also onboard non-users of digital money? To what degree might eNaira benefit financial inclusion, particularly in rural areas with many excluded people?"
  - Q9: Technical architecture questions on Hyperledger Fabric usage:
    - Whether Hyperledger Fabric uses BFT rules for block validation in eNaira and the super majority threshold currently used (e.g., 2/3).
    - System performance: "How has the system performed in terms of efficiency (capacity and speed to process mass transaction)? Would a blockchain-based system be able to absorb very large transaction volumes expected to eventually materialize in countries like Nigeria?"
    - Feasibility of hybrid architectures: "Could a hybrid system between blockchain and host-client models be a solution (as in the case of eYuan) to the efficiency problem? If not, what alternative models can be pursued?"
    - Cybersecurity and operational questions: "How has the system performed in terms of cyber security (e.g., temper proof, resilience to hacking or DoS attacks)? Who takes care of user training? Is there a manual and/or a helpdesk?"

*Source: IMF Working Paper — Annex I. Sub‑Saharan Africa: Financial Inclusion and Remittance Challenges and CBDC (from the provided PDF content).*

### References

### References

### Central bank digital currencies, payments systems, and cross-border CBDC work
- Bank of International Settlement, 2022, “Central Bank Digital Currencies: a New Tool in the Financial Inclusion Toolkit?”, FSI Insights, No. 41, April. 
- Bank of International Settlement, 2017, “How do Fast Payment Systems Work?”, BIS Quarterly Review, March. 
- Bank of International Settlement, 2022, “Project Dunbar: International Settlements Using multi-CBDCs” (https://www.bis.org/about/bisih/topics/cbdc/dunbar.htm). 
- Bank of International Settlement, 2021, “Central Bank Digital Currencies: Financial Stability Implications”, September 2021 (https://www.bis.org/publ/othp42_fin_stab.pdf). 
- Bank of International Settlement, Committee on Payment and Market Infrastructure, International Monetary Fund, and World Bank, 2022, “Central bank digital currencies for cross-border payments”, Report to G20: July 2022 (https://www.bis.org/publ/othp38.pdf).  
- GSMA, 2020, “Many Paths to Mobile Money Interoperability: Selecting the Right Technical Model for your Market”, https://www.gsma.com/mobilefordevelopment/resources/many-paths-to-mobile-money-interoperability-selecting-the-right-technical-model-for-your-market/).  
- McCune, Eric, 2014, “There is no such Thing as an International Wire”, Payment Views, May (https://pv.glenbrook.com/there-is-no-such-thing-as-an-international-wire/).  
- White House, 2022, “Policy Objectives for a U.S. CBDC System”, September (https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Policy-Objectives-US-CBDC-System.pdf).  
- International Monetary Fund, 2018, “Casting Light on Central Bank Digital Currencies”, Staff Discussion Note: November 2018. (https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2018/11/13/Casting-Light-on-Central-Bank-Digital-Currencies-46233).  
- International Monetary Fund, 2020, “Digital Money Across Borders: Macro-Financial Implications”, IMF Policy Paper: October 2020 (https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/10/17/Digital-Money-Across-Borders-Macro-Financial-Implications-49823).  
- International Monetary Fund, 2022, “Behind the scenes of Central Bank Digital Currencies”, Fintech note February 2022 (https://www.imf.org/en/Publications/fintech-notes/Issues/2022/02/07/Behind-the-Scenes-of-Central-Bank-Digital-Currency-512174).  

### Algorithmic stablecoins, crypto, and fintech risks
- Clement, Ryan, 2021, “Built to Fail: the Inherent Fragilities of Algorithmic Stable Coins, The Wake Forest Law Review, Online 131, October (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3952045). 
- Chaundhary, Amit and Ganeshi Viswanath-Natraj, 2022, “Algorithmic Stable Coins and Devaluation Risk” (https://cepr.org/voxeu/columns/algorithmic-stablecoins-and-devaluation-risk). 
- Vanian, Jonathan, 2021, “What is Terra? Your Guide to the Hot Cyptocurrency”, Fortune (https://flipboard.com/topic/ycombinator/what-is-terra-your-guide-to-the-hot-cryptocurrency/a-X6o_2SuZQru2uQKKqDlmDw%3Aa%3A3660038-64f17201dc%2Ffortune.com?format=amp).  
- Manon, Ravi, 2022, “Making Sense of Crypto”, F&D, International Monetary Fund, September, pp 14-17.  
- Pascual, Antonio Garcia and Fabio Natalucci, 2022, “Fast Moving FinTech Poses Challenges for Regulators”, IMF Blog, April (https://www.imf.org/en/Blogs/Articles/2022/04/13/blog041322-sm2022-gfsr-ch3).    

### Remittances, mobile money, interoperability, and regional fintech competition
- Filho, Tito Nicias Teixeira da Silva, 2021, “No Easy Solution: A Smorgasbord of Factors Drive Remittance Costs”, IMF Working Paper, July, WP/21/199. 
- Economist, 2021, “Turf Wars: Africa’s Fintech Firms Vie for Domination”, Economist Magazine, November, 6th. 
- GSMA, 2020, “Many Paths to Mobile Money Interoperability: Selecting the Right Technical Model for your Market”, https://www.gsma.com/mobilefordevelopment/resources/many-paths-to-mobile-money-interoperability-selecting-the-right-technical-model-for-your-market/).  

### IMF country reports and Nigeria-specific analysis
- International Monetary Fund, “2021 Nigeria Article IV Consultation Staff Report”, IMF Country Report 22/23, February. 
- International Monetary Fund, “2022 Nigeria Article IV Consultation Staff Report”, IMF Country Report No. 2-23/093. 
- Ree, Joo K., 2020, “Nigeria—Strategy for a Monetary Policy Reset”, Nigeria Selected Issues, IMF Country Report No. 21/34, December, pp. 5-16.  

### Network externalities, competition, and economic theory
- Katz, Michael and Carl Shapiro, 1985, “Network Externalities, Competition, and Compatibility”, American Economic Review”, vol 75, No. 3, pp. 424-440.  
- Liebowitz, S.J. and Stephen E. Margolis, 1994, “Network Externality: An Uncommon Tragedy” Journal of Economic Perspectives, vol. 8, No. 2, SPRING, pp. 133-150.  

*International Monetary Fund, Nigeria’s eNaira, One Year After, Working Paper No. WP/23/104*

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_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023104-print-pdf.pdf_