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The IMF has warned the Central Bank of Nigeria (CBN) about the risks of money laundering and terrorist financing with the use of the central bank digital currency (CBDC) eNaira.
The IMF has cautioned the Central Bank of Nigeria and suggests the implementation of close monitoring systems for their central bank digital currency (CBDC).
In its Article IV on Nigeria, the IMF stated that even though there are several potential benefits of the eNaira, it brings risks of financial crime in case of wide adoption. The IMF pointed out the need to find solutions for the existing deficiencies in the Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) framework that could elevate these risks.
“While preventive measures and the planned AML/CFT regulations for eNaira intermediaries are welcome, a money laundering/terrorist financing risk assessment of domestic and cross-border uses of eNaira and the adoption and implementation of the regulation along with putting in place risk-sensitive mitigation measures should be a priority.”
Earlier on, the Fund had stated that the “recent introduction of the eNaira promises several potential benefits, including higher financial inclusion, but poses some risks. Staff welcomed the gradual rollout of the CBDC and highlighted the need for vigilance to various risks, including monetary policy implementation, bank funding, cyber security, operational resilience, and financial integrity and stability, through regular risk assessment and contingency planning.”
“The launching of eNaira could bring significant benefits, including higher financial inclusion over time and efficient delivery of social assistance, and close monitoring of risks is recommended. The eNaira offers low-cost and phone-enabled financial transactions outside established channels. This could potentially increase financial inclusion over time in rural areas and help meet the authorities’ ambitious target to increase the share of financially included adults to 95 percent.”
The IMF also added that the CBDC is vulnerable to cyber security risks, unforeseen legal issues, and financial integrity risks.“There are cyber security risks associated with the eNaira. Unforeseen legal issues, including for private law aspects of its operations (e.g., the exact nature of the legal relationship between the wallet providers and CBDC holders), may subject eNaira to litigation and operational risks”