(Bloomberg) -- Nigerians have increasingly turned to a once-spurned digital currency to transact, after a chaotic demonetization policy gave rise to a shortage of banknotes and bolstered demand for alternative payment methods.
The value of eNaira transactions has surged 63% to 22 billion naira ($47.7 million) this year, while about 13 million so-called e-wallets have been opened, a more than 12-fold increase from October, said Godwin Emefiele, the Central Bank of Nigeria’s governor. The amount of currency circulating in Africa’s largest economy has meanwhile dropped to about 1 trillion naira from 3.2 trillion naira in September, he told reporters in Abuja, the capital, on Tuesday.
The country was hit by an acute cash shortage late last year after the central bank began replacing old 200-, 500- and 1,000-naira notes with new ones in a bid to mop up excess liquidity, rein in inflation and curb rising insecurity. Some state governors challenged the program in court and the Supreme Court extended a Feb. 10 deadline set by the Emefiele to phase out old notes until year-end. About 90% of transactions in Nigeria’s informal economy are conducted using cash.
In order to sustain efforts to bring the informal economy under control, the central bank plans to only put “an optimal level of cash” in circulation to discourage people from bypassing the banking system, according to Emefiele. The regulator is working with operators to resolve congestions that hinder smooth electronic payments.
Of the more than 10 billion naira of the digital currency minted so far, about 3.4 billion naira is already in circulation, Emefiele said. He partly attributed the increased adoption of the eNaira to the government using it to pay poor Nigerians who qualified for aid under a welfare program — with 4 million new e-wallets opened as a result.
“The eNaira has emerged as the electronic payment channel of choice for financial inclusion and executing social interventions,” the governor said.
--With assistance from Mike Cohen.
(Updates with central bank governor’s comments in fifth paragraph.)
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