The ban on cryptocurrency
On February 5, the Central Bank of Nigeria (CBN) ordered local financial institutions to shut down all bank accounts associated with cryptocurrency trading platforms. It stated that the currency’s nature of anonymity and the lack of Know Your Customer (KYC) made it susceptible to illegal use for money laundering and financing of terrorism. The order said the volatility of cryptocurrency also threatened the stability of other countries’ financial systems.
Two days after placing this ban, CBN again appeared on the stage, but this time, to clarify its earlier order. “It is important to clarify that the CBN circular of February 5, 2021, did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and /or transact in cryptocurrencies”, it stated.
What is cryptocurrency?
A cryptocurrency is a digital asset designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger existing in a computerized database using strong cryptography to secure transactions records, control the creation of additional coins and verify the transfer of coin ownership.
Bitcoin is the longest and best-known cryptocurrency in the global economy. A Bitcoin was worth $8,790.51 on March 4, 2020. This year, the total value of Bitcoin ranks at $356 billion.
In a quick reaction, cryptocurrency trading platform Binance and local electronic payment apps like Bundle halted deposits. Angered Nigerian crypto users took to Twitter and other social media to condemn the action. Lawmakers from the National Assembly were not left out. Following a motion raised by Senator Istifanus Gyang and Senator Tokunbo Abiru concerning the ban, the Senate immediately mandated its Committee on Banking, Insurance and Other Financial Institutions; ICT and Cybercrime; and Capital Market, to invite CBN Governor Godwin Emefiele to throw light on the issues.
CBN Governor on crypto
On February 23, Emefiele honoured the Joint Senate Committee’s invitation and appeared before it. He did not mince words in stating that the ban on cryptocurrency was in the nation’s overall interest. Citing instances of investigated criminal activities linked to cryptocurrencies, he stated that the legitimacy of money and safety of Nigeria’s financial system was central to the mandate of the CBN. “Cryptocurrency is not legitimate money” because it is not created or backed by any Central Bank, he explained.
Lamido Yuguda, the director-general of the Securities and Exchange Commission (SEC), also backed the ban and said there was no policy contradiction between the CBN directive and the SEC’s pronouncements about cryptocurrency. According to him, SEC had in 2017 cautioned Nigerians on the risk involved in investing in digital and cryptocurrency. He added that the CBN, Nigeria Deposit Insurance Corporation (NDIC) and SEC between 2018 and 2020 had also issued warnings on the lack of protection in cryptocurrency investment.
Bolaji Owasanoye, chairman of the Independent Corrupt Practices and Other Related Offences Commission (ICPC), said the currency also posed serious legal and law enforcement risks for Nigerians due to its opaque nature and illicit financial flows. He explained that the current move to link National Identification Numbers with SIM Cards attested to the fact that terrorists, kidnappers, bandits and perpetrators in illegal acts had relied on the shield provided by anonymity to commit heinous crimes.
Senator Uba Sani, who chairs the Joint Senate Committee, noted the body was only on a fact-finding mission and had not taken any stand yet on the issue. He promised to make its recommendations after reviewing the submissions made by stakeholders.
Only Vice President Yemi Osinbajo added any positive statements to the cryptocurrency debate on the political front. In a February 26 keynote address at an economic summit, Osinbajo suggested that instead of adopting policies that prohibit cryptocurrency operations in the country, the government could develop thoughtful and knowledge-based guidelines.
“There is a role for regulation here,” he said. “And it is in the place of both our monetary authorities and SEC to provide a robust regulatory regime that addresses these serious concerns without killing the goose that might lay the golden eggs.”
He explained further that monetary authorities need to rethink their stand on cryptocurrencies since they will undoubtedly challenge traditional banking. “Block-chain technology will provide for cheaper options to the kind of fees paid today for cross-border transfers,” he noted. ““The likes of Nexo finance offer instant loans using cryptocurrencies as collateral.”
The fate of cryptocurrency in Nigeria currently hangs in the balance. But the fact remains that the decision to place this ban by the CBN was not as collectively arrived at as it should be after comprehensive consultations with relevant stakeholders. While CBN’s fears are legitimate, there is also no question that some areas of cryptocurrency could benefit the economy, as Osinbajo elaborated.
Japan, Switzerland, Singapore, Hong Kong, and Malta, among others, are the world’s most crypto-friendly countries. On the opposing end, Iceland forbids Bitcoin “to protect itself against too much money leaving the country.” Countries like Algeria, Morocco, Nepal, Pakistan, and Vietnam outrightly banned the currency.
Every business has within it the good and bad operators. A regime of stringent regulations on the operators will help fine-tune their operations. It will also enable Nigeria to learn from other nations, where crypto positively impacts the economy.