CBN sticks to unpopular option on digital currency
• Banks disable platforms, track accounts
• Investors offload assets
• ‘Stay ahead of innovation, don’t stifle it’
• Moghalu knocks CBN over ‘knee-jerk’ approach
• Directive good for anti-money laundering war, says Gwadabe
Exchanges and investors in cryptocurrencies have started reviewing their business strategies as the Central Bank of Nigeria (CBN) sticks to its gun, saying its restriction of transaction in the digital assets is in the interest of the country and parties involved.
Nigerian investors across coin exchange platforms are cashing out to hold until they fully understand how the CBN’s directive would affect them, just as the platforms urged them to switch to card deposits as they equally monitor the new regulation.
In an extensive engagement, yesterday, former deputy governor of the apex bank, Prof. Kingsley Moghalu, disagreed with the CBN, saying there are better ways to regulate than adopting a “knee-jerk” approach. Moghalu, who was part of the CBN team that initiated the Bank Verification Number (BVN) and other innovations geared towards positioning the economy for digital disruption, said central banks across the world are mainstreaming digital currencies into their regulatory structures.
Still, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, threw his weight behind the decision of the Central Bank, saying it would enhance financial safety and increase anti-money laundering compliance.
ABCON is not the only interested party that has backed the regulator. Arewa Consultative Youth Movement, Ohanaeze Ndi Igbo Youth Movement, Oduduwa Youths and Middle Belt Youths are in solidarity with the apex bank, raising concerns that the debate is being politicised.
Youths across the divides have ‘occupied’ Twitter, Facebook, Instagram and other social media platforms, calling for the head of the CBN governor, Godwin Emefiele, who they accused of ‘closing the gate against them’ despite the impacts of the depressed economy.
The Central Bank, on Friday, issued circular mandating banks and other financial institutions to hands off transactions relating to cryptocurrencies. It followed up with a statement on Sunday, justifying its decision.
It noted in the press statement that financial institutions had, since January 2017, been prohibited from transacting in the digital currencies, stressing that the decision was taken to protect the country, the financial system and Nigerians, including the youths.
“It is also important to note that the CBN’s position on cryptocurrencies is not an outlier as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use. They have all made similar pronouncements based on the significant risks that transacting in cryptocurrencies portend – the risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities. China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have all placed a certain level of restrictions on financial institutions facilitating cryptocurrency transactions,” the statement signed by the Acting Director, Corporate Communications, Osita Nwanisobi, insisted.
Moghalu, yesterday, said the action of the CBN was not consistent with global trends. He recalled that the medium of exchange did not start with fiat money and would certainly not end with it, saying, “central banks have not been comfortable with the fad” but find a way to manage the challenges.
Referring to his era at the apex bank, he said “they had a tendency towards innovation” and that there is no reason for the regulator to declare “a third war against cryptocurrency”. For him, it is safer for the bank to stay ahead of the fad rather than seeking a way to restrict its usage. He shared the concern and fears of the apex bank but suggested it should have taken a risk management approach in its intervention.
Considering that the Securities and Exchange Commission (SEC) had issued a guideline recognising crypto investment last year, Moghalu said the latest official position exposed the “lack of regulatory coordination” in Nigeria’s approach.
SEC had issued a regulatory framework for virtual and digital assets in Nigeria, recognising the asset classes. It stipulated, among others, that “all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors shall be subject to the regulation of the Commission.”
When contacted on how the new CBN’s position would influence SEC’s recognition of digital currencies as legal assets, the SEC’s Head Corporate Communication of SEC, Efe Ebelo, asked for more time to get responses from relevant “quarters.” She had not responded as of press time.
Responding to the CBN’s directive, leading exchanges, including Bundle, Buycoins, Quidax and Roqqu notified their subscribers of changes in their business processes as regards Nigeria’s market for as long as the new policy is in place.
Roqqu, in a message sighted by The Guardian, told its customers to note that, “we have seen the circular making rounds on social media. We are still gathering information about it and will keep you updated. Kindly stop deposits through bank transfers and make deposits only through the card feature.”
Binance, which claims to process two billion daily transactions in digital currencies globally, has also announced that its naira payment partners had suspended deposit services “until further notice.” It, however, said withdrawal services would continue “but might take a slightly longer time than usual.
“We will continue to provide further updates as soon as they become available, and we are working closely with all relevant stakeholders. Binance remains committed to supporting the growth of the blockchain ecosystem in Africa.”
Also, the apex bank, alongside the Nigeria Deposit Insurance Corporation (NDIC), had jointly set up a committee to look into the possibility of adopting bitcoin and technology-driven currencies. The committee reportedly submitted a report but a resolution was yet to be taken on the findings before the recent swift action.
Two days ago, The Guardian sought comment from CBN’s Nwanisobi on status of the committee’s report. He opted to respond via SMS or WhatsApp message but merely returned with the latest press release explaining rationale behind the recent decision.
Traders and exchanges are cautiously monitoring the development as it unfolds, as investors trade with restraint. Whereas many payment options, including credit/debit card transactions, third party payment and peer-to-peer (P2P) trading had been on the table, The Guardian has learnt that only the last window is in operation in Nigeria now.
Findings also show that many young Nigerians participating in the scheme also liquidate their portfolios for fear of a worse scenario. A trader on roqqu, who had sold his holding for N870, 000, said he “was “eagerly waiting for an alert to cash out and hold on for at least a week” before taking any further investment decision. He disclosed that most of his friends sold between Friday evening and yesterday while none of them was willing to buy.
“The policy is still fresh, so many people are wary of gambling. Hence, many traders have migrated to P2P in the meantime,” another trader said.
Isaac Ijuo, a lawyer and trader, said investors who opt for card transactions, as advised by exchanges, could be caught napping as Nigeria-issued MasterCard and Visa, which are mostly used, are naira-denominated. He also noted that P2P trading, “which is the foundational stone of Crypto trading,” is most favoured and canvassed following the CBN’s directive.
The banks have also acted swiftly, closing the cryptocurrency-related accounts and trading platforms. The Guardian could not confirm how many banks have shut down such accounts but was reliably informed that Providus Bank had as of Saturday shut down its trading platforms. A source in the bank said he could not confirm if any bank account was closed as of yesterday but that the organisation had no choice but to comply with the order and quickly take down the trading platforms.
Another senior banker who spoke on the condition of anonymity said his management “does not believe in the business;” hence, the bank was never involved in digital currency exchange. Suggesting that those who participated could lose sizable incomes, he said the trading platforms generated a huge volume of transactions generated for many financial institutions while the fad lasted.
Nigeria, a latecomer to the digital currency market, emerged as major driver of the business in recent years. For instance, the country traded over $566 million worth of bitcoin alone between 2015 and 2020, making it the world’s second-largest P2P bitcoin market after the United States, which recorded $3.75 billion in the period.
A professor of Applied Economics and advisor to a former CBN governor, Godwin Owoh, yesterday, accused the CBN of clamping down on highly technical and complex matters it cannot regulate, urging it to beef up its skills to stay ahead of banks’ product development drives.
He also expressed worry that the regulator’s regular flip-flop would increase “its contingency costs” beyond tolerable limits. He insinuated that many interested parties would drag the CBN to court over some of its recent anti-innovation positions.
Interestingly, many young Nigerians affected by the latest action and their sympathizers are threatening class and individual actions.
On Facebook, a lawyer, Chuks Nwachukwu, called on professional colleagues to drag the CBN boss, Godwin Emefiele, “before the court.” He charged those affected to stop whining and take action.
The youths have called out CBN on social media, saying it is not the first or second time the apex bank would take an action seemingly aimed at victimizing the youth population since the end of #EndSARS protests. The CBN had frozen accounts of individuals said to have participated in the protests. Subsequently, it tightened the noose on the e-payment space mostly dominated by youths.
But ABCON President, Dr. Gwadabe, said the regulator acted fast to curtail an emerging dangerous trend capable of eroding Nigeria’s Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) gains.
He said that before placing a ban on financial dealings that do not conform to the norm, the regulator must have got financial intelligence on such operations as kidnappers now take bitcoin as ransom.
Gwadabe said the new changing global behaviour towards cryptocurrency trading in Nigeria is not in tandem with Nigeria’s AML/CFT compliance structure as the country battled to move out of the Financial Action Task Force (FATF) sanctions list.
He observed that cryptocurrency trading is so pervasive and widespread that every segment is becoming vulnerable.
“All over the world, no regulatory institution has given a fiat approval of the new digital money due to its vulnerability to money laundering and counter-terrorism financing. Our association believes that the measures of the CBN will ensure the confidence of our foreign partners to boost economic growth.
“We, therefore, support the CBN measures and urge the Apex Bank to support a paradigm shift in Bureaux de Change (BDCs) business where we are moving from traditional brick and mortar operations to a digitized model that boosts transparency, foreign capital inflows and ease of monitoring and supervision of our operations,” he said.
He said there was need for every segment of the financial system to be regulated and guided by the CBN Act, BOFIA, Anti-Money Laundering and Counter Financing Terrorism guidelines, Know Your Customer (KYC) requirements for a safe and secured Nigeria and stable financial system”.
But Dr. Chiwuike Uba, a development economist, said a similar circular issued in 2017 had transferred the risk burden of the crypto exchange to individuals and commercial banks, wondering why the sudden change in position became necessary.
“The CBN has access to data/information that is not available to the public and would have acted based on information that they have. Be that as it may, it is important to communicate the reasons for the new directives to the public.
“Having said that, outright and sudden banning of cryptocurrency transactions in Nigeria may not be a smart strategy, because crypto has come to stay in Nigeria. First, despite the ban, P2P transactions would continue, through the circumvention of the Nigerian finance/currency space. I believe the CBN’s ban is temporary and is to afford the regulatory institution the time to run an in-depth study on virtual currency, to come out with a regulatory framework and policies.”
Uba said the ban might not be unconnected with the foreign exchange crisis the country has faced and the havoc crypto has done on Nigeria’s forex policy. “I would have recommended stakeholder consultations with the crypto market operations before the ban, thereby, giving them a chance to work out a smart, implementable and sustainable plan with the CBN,” he added.