Nigerians Rejection of CBDC Is a Warning to Other Countries

By: Henry Felix

Nigerians Rejection of CBDC Is a Warning to Other Countries

March 7, 2023 7:09 AM

Despite government incentives, Nigerians are criticizing the African country's digital currency and seeking resumed access to paper money.

Citizens in Nigeria have come to the streets to protest the country's cash shortage, as well as their government's deployment of a central bank digital currency (CBDC). The scarcity was caused by cash restrictions aimed at transitioning the country to a cashless economy. Yet, instead of embracing the CBDC, Nigerian demonstrators are demanding the return of paper money.

The country's experience strongly implies that the average citizen recognizes that CBDCs pose a significant risk to financial independence while offering no particular benefit.

CBDCs have been increasingly popular among central bankers, policymakers, and consulting firms in recent years. Citizens, on the other hand, have had a different experience. When the Federal Bank of the United States invited opinions on CBDCs, more than two-thirds of those who responded were concerned about the hazards to financial privacy, financial freedom, and banking system stability.


Furthermore, CBDCs do not provide anything new to the market in terms of consumer benefits. Several currencies are available in digital form, to the extent that individuals desire it, via debit cards, payment applications, and even prepaid cards. That much should be evident from Nigeria's poor acceptance rate, with fewer than 0.5% of Nigerians using CBDC. To put that figure in context, more than half of Nigerians have used cryptocurrencies.


CBDC adoption incentives have failed in Nigeria

The Nigerian government has tried a variety of tactics to increase adoption, but none have been successful. To its credit, the Nigerian government attempted to encourage use with modest steps at first. It lifted access limitations in August 2022, so that bank accounts were no longer required to use the CBDC. Later, in October, it offered discounts if people paid for cabs with the CBDC. Neither endeavor, however, was fruitful. Simply said, Nigerians prefer cash.

Regrettably, the Nigerian government doubled down and implemented even harsher measures, such as cash restrictions. The Central Bank of Nigeria began limiting cash withdrawals to 100,000 naira (US$225) per week for individuals and 500,000 naira ($1,123) per week for enterprises in December.

To make matters worse, the Nigerian government chose this time to redesign the money in a "move aimed at regaining the Central Bank of Nigeria (CBN) authority over currency in circulation" and to "further enhance the push to a cashless economy," according to a CBN press release.

Not only are citizens limited in the amount they can withdraw, but commercial banks also lack cash to distribute because many are still waiting for the newly designed currency to arrive.

With these limits in place, the Nigerian government was able to drain the economy of cash, paving the way for the CBDC to finally get its due.

'You can't legislate behavior modification.'

Yet, it did not work. Reports about Nigerians battling with cash limitations swiftly spread on Twitter, TikTok videos, and other social media platforms. Instead of going to the CBDC, Nigerians flocked to the streets to protest the limitations and lack of cash.


The fresh notes are expected to arrive soon, but Nigerians are unlikely to find comfort even then. "The destination, as far as I am concerned, is to establish a 100% cashless economy in Nigeria," stated Central Bank Governor Godwin Emefiele.

The company that built the Nigerian CBDC hailed the cash limits a "creative use of marketing" and predicted that other governments would follow suit. Yet, Nigeria should serve as a cautionary story for other countries considering establishing CBDCs.

The central bank "doesn't want us to be spending cash," said Ayokunle Olumbunmi, head of financial institutions ratings at Agusto and Co. in Nigeria. They want us to do transactions electronically, but you can't legislate behavior change."

Central bankers may favor CBDCs, but money is ultimately a weapon for the people. As long as the risks outweigh the advantages, CBDCs are unlikely to acquire traction in Africa or elsewhere.