Revisiting CBN ban on cryptocurrency transactions
On February 5, the Central Bank of Nigeria (CBN) released a circular addressed to banks and other financial institutions with the directive that transactions in cryptocurrencies and facilitating payment for cryptocurrency exchanges were prohibited.
The CBN further instructed all banks and other financial institutions to identify individuals or entities that transact in cryptocurrency or operate cryptocurrency exchanges and close their accounts.
That CBN letter elicited varied reactions from the Nigerian public with many expressing concern about the potential negative effect it could have on the country’s growing cryptocurrency market and innovation in financial technology.
Some stakeholders supported the ban while others questioned the goals of the policy, which they saw as stifling the livelihood of young Nigerians using cryptocurrencies to escape poverty and unemployment.
The memo, however, created interest in some Nigerians who were hitherto unaware of the existence or workings of cryptocurrencies.
Cryptocurrency is described as a digital asset designed to work as a medium of exchange where individual coin ownership records are stored in a ledger existing in a form of computerised database.
It usually does not exist in physical form like paper money and is not issued by a central monetary authority. It uses decentralised control as opposed to centralised digital and central banking systems.
The first decentralised cryptocurrency, bitcoin, was created in 2009 by presumably pseudonymous developer Satoshi Nakamoto. In April 2011, Namecoin was created and in October 2011, Litecoin was released.
The most popular cryptocurrency transacted in Nigeria is Bitcoin, but others like Dogcoin and Ethereum are also dominant while more cryptocurrencies continue to be created from time to time.
Many youths in Nigeria have found transactions in cryptocurrencies profitable and rewarding, thus increasing its popularity.
Bitcoin and other cryptocurrencies are unregulated in many countries and their legal status is unclear. This implies that financial safety is really not guaranteed.
Converting local currencies to and from bitcoin, for instance, relies on informal brokers. Prices are usually volatile, and buying and selling are a complex processes that demand technical knowledge.
In 2017, the CBN had earlier warned that cryptocurrencies were not legal tender, and that investors were unprotected.
Findings reveal that Nigeria has accounted for crypto transaction worth N566 million dollars in the last five years.
According to the estimates, out of the top 10 countries for trading volumes Nigeria ranked third after USA and Russia in 2020, generating more than 400 million dollars worth of transactions.
Some stakeholders have urged the apex bank to revisit the ban on cryptocurrency transactions and see digital currencies as another tool for economic growth.
The Nigeria Economic Summit Group (NESG) advised the CBN to carry out a comprehensive study on the workings of cryptocurrencies to check its excesses.
According to Laoye Jaiyeola, Chief Executive Officer of the NESG, though checking excesses in its transaction was a challenge that people were grappling with across the world, cryptocurrency has come to stay.
“Cryptocurrency transaction is a challenge that people grapple with all over the world. While we institute the ban, we should undertake a comprehensive study to understand how it works.
“We have been told that they can easily be deployed to fund criminal activities, but it has come to stay, and if we are going to allow it in future, we should start learning about it now,” he advised.
In July 2020, popular Nigerian social media celebrities, Ramon Abbas (Hushppuppi) and Olalekan Ponle (Woodberry) were arrested in Dubai by the Federal Bureau of Investigation (FBI) on charges of fraud and money laundering.
According to an affidavit by the FBI, criminal proceeds from both Woodberry and Hushpuppi were converted into bitcoin, and will most likely be untraceable.
This further emphasised how convenient it could be for criminals to hide their financial crimes using cryptocurremncies.
All around the world, the decentralised nature of cryptocurrency that has made it an attraction for some investors has also made it a nightmare for regulators.
CBN, in justifying the ban, explained that cryptocurrencies transaction was devoid of proper regulation and prone to financial crimes.
Osita Nwanisobi, CBN Acting Director of Communications said that the directive was only a reminder of an earlier directive in 2017 banning cryptocurrency transactions.
He said that the anonymous nature of cryptocurrency, which made it prone to financial crimes, justified the ban.
“It is important to state that cryptocurrencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography.
“Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability and regulation,” he said.
He clarified that the directive on cryptocurrency was not unique to Nigeria as countries like China, Canada, Taiwan, Indonesia, Egypt, Morocco, among others have instituted similar restrictions on its transactions.
He said that such currencies remained illegal in Nigeria because they were issued by entities that were neither licensed nor legal.
Sen. Tokunbo Abiru, representing Lagos East Senatorial District, support the ban in transaction of the Cryptocurrency in the country.
He, however, suggested that major stakeholders on cryptocurrency transaction be invited to a public hearing to appraise its advantages and its excesses.
At a joint session of relevant Senate committees on Feb. 23, Mr Godwin Emefiele, the CBN Governor further explained reasons for restricting financial institutions from engaging in crypto transactions.
Emefiele gave the assurance that the directive was not inimical to the development of technology-driven payment system in Nigeria.
He said that the Nigerian payment system had evolved significantly over the past decade, boosted by reforms driven by the CBN.
“Cryptocurrency has no place in our monetary system at this time, and cryptocurrency transactions should not be carried out through the Nigerian banking system,’’ he said.
However, Vice President Yemi Osinbajo, speaking at a recent CBN Bankers Committee Economic Summit, called for the regulation of cryptocurrency transactions in Nigeria rather than an outright ban.
Osinbajo urged the apex bank to develop a robust regulatory system to check such transactions.
“Rather than adopt a policy that prohibits cryptocurrency operations in the Nigerian banking sector, we must act with knowledge and not fear and develop a robust regulatory regime that is thoughtful and knowledge-based.
“There is no question that blockchain technology generally and cryptocurrencies, in particular, will in the coming years challenge traditional banking, including Central banking, in ways that we cannot yet imagine.
“We need to be prepared for that seismic shift. And it may come sooner than later,” he said.
Meanwhile, speaking at the 30th seminar for Finance Correspondents and Business Editors in Abuja recently, CBN Deputy Governor, Adamu Lamtek, said the bank did not ban cryptocurrency activity in the country.
Lamtek said that CBN only prohibited transactions on cryptocurrencies in the Nigerian banking sector.
He said: “the CBN did not place restrictions from use of cryptocurrencies, and we are not discouraging people from trading in them. What we have done was to prohibit transactions on cryptocurrencies in the banking sector.”