Assessing the Impact of Central Bank Digital Currency Prospects on Nigeria’s Monetary Policy
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Background of the Study
Central Bank Digital Currency (CBDC) represents a transformative innovation in monetary policy, offering new avenues for enhancing financial inclusion and improving policy transmission. In Nigeria, the prospect of introducing a CBDC has generated significant interest as policymakers seek to modernize the financial system and strengthen monetary control. Advances in blockchain and distributed ledger technologies have catalyzed this digital revolution, positioning Nigeria to potentially leapfrog traditional banking challenges and reach a broader segment of its unbanked population (Ola, 2023).
A CBDC can reduce transaction costs, increase payment efficiency, and provide the Central Bank of Nigeria (CBN) with real-time data on monetary flows. These capabilities may enhance the precision of monetary interventions, leading to more effective control of inflation and stabilization of the financial system. Recent studies suggest that digital currencies, if properly implemented, can complement conventional monetary policy tools by offering improved transparency and accountability in financial transactions (Nwankwo, 2024).
However, the transition to a digital currency is accompanied by significant challenges. Cybersecurity risks, data privacy concerns, and the potential for financial exclusion in areas with limited digital infrastructure pose substantial obstacles. Moreover, the introduction of a CBDC could disrupt existing banking models, potentially leading to disintermediation if depositors shift funds from commercial banks to the digital currency directly managed by the central bank (Chukwu, 2023). Such disruptions could have unforeseen consequences for the stability of the traditional financial sector.
This study aims to assess the potential impact of CBDC prospects on Nigeria’s monetary policy framework by examining both the theoretical advantages and the practical challenges of its implementation. Through a comprehensive review of policy documents, empirical data, and comparative analyses with other economies exploring CBDCs, the research seeks to determine how a digital currency might affect liquidity management, inflation control, and overall financial stability. The insights garnered will be vital for policymakers striving to balance innovation with prudence in an increasingly digital financial landscape (Eze, 2025).
Statement of the Problem
Despite the promising prospects associated with CBDC, significant uncertainties cloud its potential impact on Nigeria’s monetary policy. One major problem is the risk that a CBDC may introduce new vulnerabilities into the financial system, including cybersecurity threats and privacy breaches. The transition from a cash-based economy to a digital currency system is fraught with risks that could destabilize existing monetary frameworks if not managed properly (Ola, 2023).
Furthermore, Nigeria’s current regulatory and infrastructural landscape may not be fully prepared to support the widespread adoption of digital currency. The lack of comprehensive policies addressing digital security, consumer protection, and data privacy poses a challenge to the effective implementation of a CBDC. Inadequate digital infrastructure could also exacerbate the digital divide, excluding portions of the population from the benefits of financial innovation (Nwankwo, 2024).
Another significant issue is the uncertainty regarding the operational mechanisms of a CBDC—whether it will bear interest, how it will integrate with existing monetary instruments, and its impact on traditional banking operations. Such uncertainties could lead to market instability and undermine confidence in the financial system. The disruption to conventional banking could result in unintended consequences, such as a reduction in bank deposits and a weakening of credit intermediation (Chukwu, 2023).
This study seeks to systematically examine the potential disruptive effects of CBDC on Nigeria’s monetary policy and broader financial ecosystem. It will identify structural and operational challenges that could impede successful implementation and propose policy interventions to mitigate associated risks, thereby providing a roadmap for a smooth transition to digital currency while ensuring financial stability (Eze, 2025).
Objectives of the Study
1. To evaluate the potential impact of CBDC on Nigeria’s monetary policy mechanisms.
2. To identify the challenges and risks associated with the implementation of a CBDC.
3. To propose policy recommendations for integrating CBDC into Nigeria’s financial system effectively.
Research Questions
1. How might the introduction of a CBDC affect traditional monetary policy tools in Nigeria?
2. What are the key regulatory and technological challenges in implementing a CBDC in Nigeria?
3. How can the potential risks associated with CBDC be mitigated to ensure financial stability?
Research Hypotheses
1. The introduction of a CBDC significantly enhances the efficiency of monetary policy operations.
2. Regulatory and technological challenges adversely affect the successful implementation of CBDC.
3. Effective policy interventions can mitigate the risks associated with CBDC adoption.
Scope and Limitations of the Study
This study focuses on assessing the prospects and implications of a CBDC on Nigeria’s monetary policy using secondary data and policy analysis. Limitations include the nascent stage of digital currency research and potential data gaps on emerging technologies.
Definitions of Terms
Central Bank Digital Currency (CBDC): A digital form of central bank money available to the public.
Monetary Policy: The process by which a central bank manages liquidity and interest rates to achieve economic objectives.
Digital Divide: The gap between individuals with and without access to modern information and communication technology.
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