Digital currency: IMF calls for increased adoption of payment method to avoid liquidity shortage

The International Monetary Fund (IMF) has reiterated the risks associated with central bank digital currency (CBDC), urging countries to adopt the mode of payment in monetary transactions.

The IMF said that countries operating digitally, including Nigeria, could experience a shortage of liquidity, difficulties in making payments and multiple obstacles in transactions.

king of investors recalls that the Central Bank of Nigeria, CBN, launched Nigeria’s digital currency called e-naira in October 2021.

The e-Naira was introduced to promote cross-border trade, accelerate financial inclusion, and lead to cheaper and faster remittances.

According to the CBN, e-naira will improve macro management and growth, facilitation of cross-border trade, financial inclusion, monetary policy effectiveness, improved payments efficiency, money collection income tax, improved remittances and targeted social intervention.

King investors understood that some other countries with digital currency include: Ghana (e-cedi), South Africa (digital rand), Tunisia (eDinar), China (digital yuan), Bahamas (dollar Sand), Eastern Caribbean (DCash).

Sweden, Japan, South Korea, Bahamas, Russia among others have also launched their digital currencies.

In December 2021 and January 2022, Nigerian banks faced cash shortages at some of their branches in Lagos, Abuja and Port Harcourt, with customers being denied access to cash, leading to long queues. ‘waiting.

The IMF, in its report “Behind the Scenes of Emerging Trends, Insights, and Policy Lessons in Central Bank Digital Currency, claimed that it could be difficult to make payments if cash flows are falling.

He noted that those in remote areas with fewer investors and private companies are more affected by its effects.

In the report, the IMF said the CBDC should be designed in the interest of the general public for continued access to convenient cash payments.

“In countries where the use of cash and checks is high, operational costs are high. And in some countries, existing digital payments are also relatively expensive.

“The CBDC is therefore a potential policy tool to offer digital forms of payment that are cheaper to operate. The not-for-profit nature of central banks means that they could potentially offer low-cost payments as a public good, potentially subject to the need to recover costs over time.

“Certain characteristics of cash, including anonymity and the lack of an audit trail, make it attractive for illicit transactions such as tax evasion, money laundering and terrorist financing. The CBDC could potentially reduce this problem,” the report read.

The IMF added that digital currencies could increase competition in terms of payment, existing payment methods or as an open platform for private payment service providers.

The financial institution, however, said the Nigerian e-Naira has the potential for financial inclusion as well as increasing diaspora remittances, but could pose risks to Nigeria’s financial stability.

He therefore instructed the apex bank to look into its digital currency to manage it properly to avoid its negative effects on the economy.

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