Crypto-currency ban and stakeholders’ angst

The Central Bank of Nigeria (CBN) recently released a statement directing banks to wash their hands off every crypto-currency transaction. This has not gone down well with operators in the sector. In this report, BENJAMIN UMUTEME takes a look at the long-term implication of the CBN stance.

On Friday evening, Nigerians were taken by surprise when the CBN released a press statement directing banks in the country to close all crypto-currency-related accounts. In the letter, the CBN referenced a circular it issued in January 12, 2017, ref FPR/DIR/GEN/CIR/06/010 cautioned Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs) and other financial institutions (OFIs) as well as members of the public on the risk associated with transactions of crypto currency.

“Further to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in crypto-currencies or facilitating payments for crypto-currency is prohibited. Please note that breaches of this directive will attract severe regulatory sanctions. This letter is with immediate effect,” the statement read in part. That same Friday, Bitcoin, the world’s most popular crypto-currency, traded at $38,083 (N 14,471, 540), according to data from coinmarketcap.com.

In 2020, estimates from BuyCoins showed that total volumes of Bitcoin traded in Nigeria stood at $200 million per month more than what was traded on the Nigerian Stock Exchange ($131 million) in the second quarter. The CBN had in 2017 and 2018 warned Nigeria of the dangers of crypto-currency trading.

However, on Monday, the banking sector regulator came out with a five-page statement engaging why it took the decision.

CBN’s reasons for the action

For the CBN, the use of digital currency would not only present a new set regulatory challenges, it has the potential to disrupt the country’ financial system, which it has been toiling so hard to stabilise. It stated that the prohibition of cryptos was not exclusive to Nigeria, as certain levels of restrictions on financial institutions facilitating crypto transactions have been applied in several other countries around the world.

“China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal, and Cambodia are some of the countries that have placed restrictions on crypto-transactions.

“Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation. They have all made similar pronouncements based on the significant risks that transacting in crypto-currencies portend-risk of loss of investments, money laundering, terrorism financing, illicit fund flows, and criminal activities.

“The question that one may need to ask, therefore, is why any entity would disguise its transactions if they were legal. It is on the basis of this opacity that crypto-currencies have become well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion,” the statement stated further.

The CBN added that a significant number of people use it for speculative purposes rather than payment, citing the flagship crypto model Bitcoin, as an example.

Reactions

The CBN stance did not go down well with Nigerians who see the action as one that is meant to take away food from people’s table. Several financial analysts have questioned the action of the apex bank saying it is not knowledge driven.

Speaking on Channels TV’s Sunrise Daily, monitored in Abuja by this reporter, a financial economist and investment adviser, Onuoha Nnachi, said the action by the CBN “is an abuse of office.” According to him, while countries are building regulations Nigeria is banning.

“Coming up with this same statement is absurd. It will force many Nigerians to go to neighbouring countries to do their business. We should look at it from its effect on the economy,” he said.

For the editor-in-chief of Sears Business, Tokunbi Afikuyomi Jr., the move by the CBN contradicts what another regulator, SEC is doing. The Security and Exchange Commission (SEC) had last year said it was working on a law that will formalise crypto assets.

Noting that Nigerians traded over $141 million worth of Bitcoin on BuyCoins alone last year, Afikuyomi said it harms the startups across Nigeria’s crypto-landscape (not just the exchanges) just as it will get investors worrying.

He was adamant that, “We have here another policy that is trying to strangle a sector that has just started to find its feet and grow.”

Former Vice President Atiku Abubakar called on the CBN to reverse its policy directing Nigerian banks to close all crypto-currency‐related accounts and stop such transactions in the country. Also, former deputy governor of the CBN, Kingsley Moghalu, faulted the apex bank’s action, saying the ban would take away livelihoods of people who engaged in it.

“This is livelihoods for Nigerians, so why would you take actions that look as if you are taking away opportunities from Nigerians especially in a depressed economy,” he said.

A crypto-currency group, Blockchain Alliance, in a statement, stressed the need for the apex bank to reverse the ban.

“This is a multi-trillion industry that transcends national governments. We suspect somewhere some fifth columnists from within the administration may be scheming to sabotage the Buhari Presidency which has been very adaptive to new ideas and innovations.

“They can’t claim crypto-traders in Nigeria are faceless. You register with your BVN. You are verified based on KYC principles. This is nothing, but a desperate attempt to ensure we are happy with ‘poverty alleviation’ moves instead of the wealth innovation brings,” Japheth Omojuwa, a popular social media commentator, noted.

‘Crypto upsetting financial system’

The chief executive officer of IPI Group, Adamu Garuba, speaking on Channels TV, said the crypto-currency transactions were upsetting the country’s financial system. Garuba noted that with $566 million traded crypto-currency last year in Nigeria, it is heating up the financial system.

He said, “Over financialisation of the system should not be allowed.

“Is that how we want to run a third world economy that is struggling?”

According to him, crypto-trading is speculative as it can bust at any time and that Nigerian politicians were taking out huge sums of money through crypto-currency.

“Until it can be regulated, there is no need to participate in it. The whole world does not accept it and Nigeria can’t be an exception.”

In the same vein, the Association of Bureaux De Change Operators of Nigeria (ABCON) backed the CBN’s policy.

The ABCON president, Aminu Gwadabe, told journalists that 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 before placing a ban on financial dealings that do not conform with the norm, the regulator must have got a financial intelligence report on such operations, as seen in kidnappers now collecting Bitcoin for 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 said crypto-currency trading “is so pervasive and widespread that every segment and all operators in the financial industry are becoming vulnerable to their operations that are not guided by regulation.”

“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. It is, therefore, the belief of our Association that the measures of the CBN will ensure confidence of our foreign partners to boost economic growth,’ he said.

Also, finance analyst Uche Usim applauded the apex bank’s action, noting that it was better to err on the side of caution.

He said, “It’s like operating in a bubble. You can never predict when it bursts and the players are largely anonymous. That’s a twin evil. I’m actually with CBN/FG on this crypto-currency matter. Yes, the future is crypto-currency, but we still need a little more control here…. Ever since kidnappers of a friend’s daughter insisted on collecting the ransom in Bitcoin, I knew we were in serious trouble with crypto-currency.”

Managing risks

Moghalu also noted that a lot of the world “is going digital,” and that crypto-currencies are part of it.

“So, my attitude would be how, can we best manage the risks of crypto-currencies to ensure that they do not affect the stability of the financial systems. That’s what I would have done,” he said.

Afikuyomi believes that the CBN needs to increase regulation around the crypto- market.

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