Written by Amy Mong
Nigeria is among the top countries in terms of demand for cryptocurrency. Although cryptocurrency struggles with regulation overall, it relies on a decentralized system to record transactions, manage the issuance of new units and prevent counterfeiting and fraudulent transactions.
Bitcoin is the contemporary cryptocurrency in greatest circulation. First introduced in 2008 by Satoshi Nakamoto, it is designed to provide a digital form of cash that is decentralized. The decentralized nature of cryptocurrency makes it entirely different from fiat currencies. Using peer-to-peer technology, Bitcoin allows its users to complete transactions without the approval of any central authority. It is wholly based on blockchain technology and provides anonymity to both sender and receiver. As much as cryptocurrency affects all facets of life, it is not becoming a substitute for traditional currencies. It is, however, pushing the formation of new currency systems in a growing number of countries including Japan, Switzerland, Singapore and Malta, which actively embrace its use.
Cryptocurrency was not readily accepted when it was introduced onto the Nigerian market, because the authorities saw it as a means for criminals to perpetrate fraudulent activity. Cryptocurrency gained momentum in Nigeria sometime in 2017, especially among individuals taking part in the MMM Ponzi scheme, and the Nigerian government still do not recognize cryptocurrency as a means of exchange. In September 2020, the Securities and Exchange Commission (SEC) released a statement explaining their stance on cryptocurrency, stating that the regulation aims to create standards that encourage ethical practices and ensure a fair and efficient market. However, a few months later, the Central Bank of Nigeria (CBN) sent out a directive to all Nigerian financial institutions prohibiting all cryptocurrency transactions and directing the institutions to stop all cryptocurrency transactions and close the accounts of customers transacting in the same. The CBN claims it was reiterating its stance contained in a previous circular sent out in 2017 to banks and other financial institutions stating that “virtual currency transactions are largely untraceable and anonymous, making them susceptible to abuse by criminals, especially in money laundering and financing terrorism”. They maintain the opinion that, because virtual currency platforms are unregulated globally, consumers are at constant risk of losing money and having no means to seek redress. The circular goes on to state the courses of action the banks and financial institutions should take, pending the formation of proper regulations regarding virtual currency transactions, ending with a disclaimer.
There have been many changes in the Nigerian financial sector since 2017, along with a growing momentum of virtual currencies in various sectors, especially fintech, to the extent that they are now recognized by the SEC. The general reactions to the CBN directive was one of anger and concern, as various businesses became uncertain about their fate and that of their customers. The CBN, in response, issued a press release to justify the decision set out in the previous directive, state the merits and chart the evolution of the Nigerian payment system. These justifications, according to the press release are:
- Cryptocurrency is issued by unknown and unregulated entities.
- Cryptocurrency is volatile as it is more widely used as a speculative asset rather than a means of payment.
- Cryptocurrency does not have any intrinsic value and does not generate returns on itself.
The SEC, in response to queries about the ban, published a press release supporting the CBN directive and stating that, as much as digital assets have the full characteristics of investments as defined by the Investment and Securities Act (2007), the CBN, in its capacity as the regulator of the banking system, identifies certain risks which, if permitted to continue, would threaten the protection of investors as well as the stability of the financial system, hence their decision.
The major effect of the ban has been to prevent cryptocurrency traders in the Nigerian market from buying, selling or receiving the proceeds of cryptocurrency transactions necessary for the running of their businesses. Banks, in response to the CBN directive, commenced identifying and deactivating accounts making transactions in cryptocurrency. This poses significant inconvenience, as individuals and businesses are left stranded without access to their funds. Simply put, this new policy is, unfortunately, diminishing the welfare of Nigerians.
The ban has received attention at the highest levels of government. The Senate invited the CBN and SEC, through their committees on banking, insurance and other financial institutions, ICT and cybercrime, and capital markets, to brief them on the opportunities and threats of cryptocurrency to the Nigerian economy and security.
Our view of the situation is that there is no positive impact occasioned by this ban which takes us several steps back in addition to causing hardship for everyone affected. Cryptocurrency is key to the current wave of start-ups in the Nigerian market. It signifies that the market is moving with the times. The most important step is for the governing body to find ways to allay their concerns regarding cryptocurrency and protect the populace from said concerns, taking their cues from international regulatory bodies in countries that have found ways to incorporate cryptocurrency into their economies, choosing a model suited to the Nigerian market. Better still, they should make use of the industrious minds in the sector to create such a model.
In March 2021, the CBN retracted claims that there was a ban on cryptocurrency trading in Nigeria, saying they did not place any restrictions on cryptocurrency. The CBN’s deputy governor claimed that the ban was merely a prohibition on transactions in cryptocurrency in Nigeria’s banking sector. This grey area is very confusing for both the financial sector and its customers. Instead of banning cryptocurrency, the CBN should consider regulation, especially as it drives a huge financial volume and a decent livelihood for millennials and gen-Z.