Central Bank Digital Currencies and Financial Stability in Nigeria: Evidence from the Enaira

Abstract

The emergence of Central Bank Digital Currencies has transformed contemporary discussions on monetary policy, payment system modernization, and financial stability. While CBDCs are expected to enhance payment efficiency, promote financial inclusion, reduce transaction costs, and strengthen monetary policy transmission, empirical evidence regarding their implications for financial stability remains limited, particularly in developing economies. This study examined the causal relationship between CBDC activities and financial stability in Nigeria using quarterly data spanning 2021Q1–2025Q4. Financial stability was proxies by the Non-Performing Loan Ratio , while CBDC activities were measured using transaction value , transaction volume , and digital wallet adoption . The study employed the Augmented Dickey–Fuller unit root test and the Toda–Yamamoto causality approach because the variables exhibited mixed orders of integration. The findings revealed that transaction value, transaction volume, and digital wallet adoption did not exhibit statistically significant causal relationships with financial stability during the study period. However, weak evidence of causality was observed from transaction volume to digital wallet adoption, suggesting that increased digital payment activities may stimulate wider adoption of the eNaira. The findings indicate that the limited influence of CBDCs on financial stability reflects the early stage of adoption and integration of the eNaira rather than the ineffectiveness of the CBDC initiative. The study recommends sustained investment in digital infrastructure, enhanced financial literacy, stronger cybersecurity measures, and supportive regulatory policies to accelerate CBDC adoption and maximize its long-term contribution to financial stability. The study contributes to the literature by providing one of the earliest empirical assessments of the relationship between CBDCs and financial stability in Nigeria using the Toda–Yamamoto causality framework.

Keywords

References