Nigeria’s Cryptocurrency and Digital Currency Debate, by Inyene Ibanga
Early February this year, the Central Bank of Nigeria (CBN) released a circular to banks and financial institutions, warning that transactions in and facilitating payments for cryptocurrency exchanges were prohibited.
The CBN further directed all banks and financial institutions to identify and close accounts associated with individuals or entities that carry out transactions in cryptocurrencies and operate cryptocurrency exchanges. According to the bank, this was a reminder to the directive it issued in 2017.
Justifying the directive, the CBN governor, Godwin Emefiele stated that cryptocurrencies were being used to facilitate scams and money laundering, which were highly inimical to the economy and could further weaken the naira.
The directive received the backing of Nigeria’s anti-corruption agencies, the Economic and Financial Crimes Commission (EFCC), the Independent Corrupt Practices and Other Related Offences Commission (ICPC) and the Nigerian Financial Intelligence Unit (NFIU).
The EFFC, through its chairman, Abdulrasheed Bawa, views cryptocurrencies as avenues through which criminals launder the proceeds of crime and illicit financial transactions, saying that the Commission had recovered loots of cryptocurrencies worth about $20 million from cybercriminals.
Similarly, Bolaji Owasanoye, the chairman of ICPC, believes cryptocurrencies could be used to fund insurgencies, adding that the #EndSARS protest was largely financed through the cryptocurrency.
The anti-graft agencies disclosed that they currently have a number of cases linked to cryptocurrencies but have been unable to track the suspects, noting that it will be difficult to solve cases involving cryptocurrencies because the role players were unknown.
Consequently, the Securities and Exchange Commission (SEC) suspended the approval of cryptocurrencies and related products in Nigeria. This came after its earlier indication to accept bitcoins. The capital market regulator would only permit such digital currencies if they operate bank accounts within the Nigerian banking system.
But a gale of reactions from within and outside the cryptocurrency community has continued to trail the directive of the apex bank, causing fears that the ban could adversely impact fintechs and hinder the rising potentials of the Nigerian economy.
Considering the growing global popularity of the cryptocurrency phenomenon, which is being used in over 100 countries, and Nigeria’s rating as the world’s second-largest user of virtual currencies, the CBN directive succeeded in stirring anxiety in the cryptocurrency community.
In a reaction described by many as political, the Vice President, Professor Yemi Osinbajo contested that rather than a blanket prohibition of cryptocurrencies, the situation actually called for a more robust regulatory framework that addresses the concerns raised about the cryptos without killing the rising potentials of digital currencies for the country’s economy.
A cryptocurrency is an encrypted digital or virtual currency meant to be a medium of exchange. It is a form of payment that can be exchanged for goods and services online. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the goods or services that the company provides.
Cryptocurrencies work through the blockchain, which is a decentralised technology spread across many computers, which manages and records transactions.
More than 10,000 different cryptocurrencies are traded publicly, but Bitcoin, Ethereum, Tether, Binance Coin, Dogecoin, and Litecoin are listed among the top ten highest trading cryptocurrencies in the world by market capitalisation.
As of May, the total value of all cryptocurrencies was more than $1.7 trillion, while the total value of all bitcoins, the most popular digital currency, stood at about $735 billion.
One of the major benefits of the cryptocurrency is that it removes central banks from managing the money supply, which is why many people have been racing to buy them. It has the potential for high returns and diversification.
Also, international cryptocurrency transactions are faster than wire transfers too. Cryptocurrency transactions take only a matter of minutes or even seconds. And anyone is free to use a cryptocurrency, without the need to set up a bank account, which requires documentation and other paperwork.
Another benefit is the blockchain technology behind cryptocurrencies. The advanced blockchain decentralised processing and recording system makes cryptocurrencies more secure than traditional payment systems.
Still, with cryptocurrencies, the transaction costs are much lower unlike the fees for transferring money from a digital wallet to a bank account. Transactions can be done at any time of the day or night, and there are no limits on purchases and withdrawals.
However, the downside of cryptocurrencies is that they are mostly driven by the private sector, without official oversight or regulation. This means that cryptocurrencies can be easily exploited by criminals to perpetrate fraudulent and other illegal activities, such as funding terrorism, insurgency, and political instability.
The CBN later explained that its warning did not bar Nigerians from transacting in cryptocurrencies or holding digital currencies, but was aimed at protecting the banking sector from the activities of cryptocurrencies.
While accepting that it prohibited cryptocurrency transactions in the banking system, the monetary regulator maintained that it did not place any restrictions on cryptocurrencies in general and neither is it discouraging individuals or entities from trading them.
Meanwhile, the CBN has announced plans to begin the issuance of the digital currency, an electronic model of currency notes and coins that can be stored in the digital wallet, before this year runs out. The bank said this would facilitate smooth international remittances to Nigeria.
With the state-regulated digital currency, Nigeria would be able to issue its own sovereign digital currency to complement cash notes and coins. This would help to address CBN’s fears over the susceptibility of cryptocurrencies to criminal abuses and deepen financial inclusion.
At this time when the cryptocurrency is gaining global popularity and acceptance, the apex bank should take steps to create opportunities for dialogue and collaboration with cryptocurrency traders and exchanges.
Therefore, it is important for banking/financial sector regulators to focus more on promoting people-friendly policies to enable more Nigerians to take advantage of the growing cryptocurrency market to achieve economic progress.
Inyene Ibanga is Managing Editor TechDigest and writes from Wuye District, Abuja.
