The Central Bank of Nigeria (CBN) on the 5th of February 2021, directed Deposit Money Banks (DMBs), Other Financial Institutions (OFIs) and Non-Bank Financial Institutions (NBFIs), local financial institutions against having any transactions in crypto or facilitating payments for cryptocurrency exchanges.
This direction came even when the likes of Bitcoin and Ethereum are gaining momentum and investments around the world, as Tesla purchased $1.5 billion of bitcoin earlier this month to “further diversify and maximize” the return on its cash, while the Central Bank of Kenya has also announced its decision to use Bitcoin as a reserve currency to solve the country’s economic problems.
The ban on cryptocurrency in Nigeria came as shock to many. The West African nation is considered the world’s second-largest Bitcoin market after the United States, and the biggest Bitcoin market in Africa, followed by South Africa and Kenya.
In a letter disclosed and signed by the director of banking supervision (Apex bank), Bello Hassan, the country’s banking officials noted that “further to other regulatory directives on the subject, the bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payment from cryptocurrency exchanges are prohibited”.
“Accordingly, or DMBs, OFIs, NBFIs, are advised to identify persons and /or entities transacting in or operating cryptocurrency exchanges within their system and ensure that such accounts are closed immediately.”
“Accordingly, or DMBs, OFIs, NBFIs, are advised to identify persons and /or entities transacting in or operating cryptocurrency exchanges within their system and ensure that such accounts are closed immediately.”
– Letter signed by the director of banking supervision (Apex bank)
The Central Bank of Nigeria (CBN) also promised to issue serious punishment to any financial institution that violates the stated directives. It reads “Please note that breaches of this directive will attract severe regulatory sanctions”.
Why the ban
The CBN doesn’t clearly state its reasons for the crackdown. The managing consultant of Time-Line Consult, Shuaib Idris, noted that the CBN had foreseen a potential crisis in the digital currency trade.
According to him, there was about $4 billion of assets embedded in cryptocurrencies in Nigeria.
“If the owners of these assets reside in China, Singapore, India, US, or Kenya come and take this money, what will happen to the economy of Nigeria? There will be a systemic collapse.”
“Then there’s a potential systemic collapse arising from the price sensitivity that is exceptionally high with Bitcoin,” he added.
– Shuaib Idris
While some Local media in Nigeria, such as Premium Times reported that CBN claims the digital currency is used to sponsor terrorism acts in the country, others have reported that decision was due to the warning received from the United States Federal Bureau of Investigation (FBI), as regards the activities of fraudsters using cryptocurrencies to bring hundreds of millions of US Dollars obtained illegally from US and other countries into Nigeria.
According to these reports, those behind these illicit acts send millions of dollars to Nigeria through cryptocurrencies to avoid detection. And this perhaps made it difficult for the authorities of both US and Nigeria to trace the illegal funds.
What it means for the Nigerian economy
Based on the official statement and media reports, it could be said that the Central Bank of Nigeria has already identified cryptocurrency as an industry threat. Although other perspectives into the issue stressed that despite the legal status, cybersecurity and price vitality concerns, cryptocurrency still has the potential of enabling social and economic growth in Nigeria, the same way it has done to many other countries, by offering easier access to capital and financial service.
Segun Awosanya, a Nigeria business and strategic consultant said the ban will not only shut down trading in Nigerian currency but also cause devaluation to Naira because businessmen will now trade mostly in dollars.
“The only thing the ban will do is to shut down the trade in Naira and puts more pressure on the Naira with a high volume of transactions in Dollar.”
“In no time you will need a truckload of Naira to buy one single dollar.”
– Segun Awosanya
He, however, added that the people who hold cryptocurrency in any form shouldn’t panic, because the ban will get them richer.
Reno Omokri, a former special assistant to the Nigerian ex-President Goodluck Jonathan, also noted that the government should have regulated cryptocurrency trading instead of banning it.
According to him, “You don’t need to throw away the baby with the bathwater. You don’t need to destroy Nigeria economy because of regime security. If at all the government have issues with Crypto and Bitcoin, they shouldn’t have eliminated it but rather, regulate it. Eliminate it and you eliminate jobs. And our youths need jobs”.
He also stressed that, if the government cannot create jobs for youths, then they shouldn’t destroy the jobs that the youths create for themselves through Crypto and Bitcoin.
Implications for startups & small businesses
Social media users have put forward various solutions to cryptocurrency holders and small business owners that accept Bitcoin in Nigeria. Although the tensions over crypto transactions in the country still remain.
The statement signed by Osita Nwanisobi, CBN’s acting director, corporate communications, said the ban on such transactions will not have any negative impact on FinTechs.
However, based on different studies and reports on the impacts of cryptocurrencies on eCommerce and small businesses, it is clear that the ban in Nigeria will affect the advantages and promises cryptocurrency offers for small business transactions, such as the opportunities of direct payments from buyer to seller, which significantly reduces or eliminate fees charged by payment processors and banks, and the ability to conduct transactions without third-party verification for cryptocurrency that uses blockchain.
Writer, journalist, and legal researcher, Alafarika for Studies and Consultancy.