CBN Warns Digital Payment Growth Could Spark Currency Substitution and FX Volatility
The Central Bank of Nigeria (CBN) has raised alarms over the rapid expansion of digital payments, warning that without careful regulation, the trend could lead to currency substitution and heightened foreign exchange (FX) volatility. Speaking at the 2026 G‑24 Technical Group Meetings, CBN Governor Olayemi Cardoso highlighted risks associated with the growth of private digital payment platforms and stablecoins, stressing that dominance by foreign currencies could weaken the country’s monetary policy transmission.
Governor Cardoso acknowledged that while digital payment reforms offer significant opportunities, such as faster cross-border transfers, greater financial inclusion, and easier access for households and small businesses, they also bring vulnerabilities. He pointed to fragmentation across jurisdictions, the systemic importance of non-bank payment providers, and potential regulatory arbitrage as challenges that could undermine monetary sovereignty if left unchecked.
The apex bank’s reforms have already boosted remittances, with inflows now averaging $600 million monthly. Cardoso encouraged other G‑24 countries to adopt similar measures to lower remittance costs, support micro, small, and medium enterprises (MSMEs), and deepen regional financial integration. “The opportunities of digital payments come with equally significant risks,” he noted, urging careful sequencing and robust oversight to prevent fragmentation and excessive reliance on dominant foreign currencies.
Finance Minister Wale Edun added that Nigeria’s ongoing tax reforms and digitalization efforts aim to raise the country’s tax-to-GDP ratio to 18 percent in the medium term. By modernizing tax laws, broadening the tax base, and introducing technology-driven systems, including the National Single Window and Central Billing System, the government is shifting from heavy borrowing toward private investment-led growth while reducing inefficiencies and leakages.
Meanwhile, G-24 Director Dr. Iyabo Masha highlighted the pressures facing Emerging Market and Developing Economies (EMDEs), where debt-servicing obligations consume growing shares of revenue. She warned that sudden shifts in global investor confidence could trigger capital outflows and currency weaknesses, while trade barriers and protectionism further slow recovery. Masha called for stronger macroeconomic frameworks, domestic resource mobilization, regional integration, and investment in climate resilience and human capital to support sustainable growth in developing nations.
source: The sun