The Central Bank of Nigeria (CBN) has stirred the hornet’s nest with its February 5 directive on cryptocurrencies which ordered banks to close all accounts related to the phantom medium of transaction. The directive has effectively banned the use of cryptocurrencies as a medium of transaction.
Though thousands of Nigerians still hold cryptocurrencies, especially bitcoin, the CBN directive now stops them from obtaining goods and services through that medium. With Nigeria’s excruciating forex crunch, bitcoin and other cryptocurrencies had become viable alternatives to beating CBN’s stinginess with forex.
All that is over for Nigerians as the CBN joined the league of six wretched nations in banning transactions in cryptocurrencies. The others in the infamous club are Bangladesh, Bolivia, Algeria, Ecuador, Nepal and Macedonia, a tiny Balkan republic that rose from the ruins of the defunct Yugoslavia.
Nigeria is the richest in the infamous league of nations banning transactions in cryptocurrencies. All the developed rich nations of the world have grudgingly accepted the challenges posed by cryptocurrencies and opted to live with it even as no one can regulate or fix their value.
Cryptocurrency is the 21st century nightmare of central banks. It has beaten the monetary economist’s perception of money control as the exclusive preserve of governments. Before the emergence of cryptocurrencies, only governments could issue currencies and give them value as medium of transactions. Cryptocurrencies have ended that monopoly with its appearance in the currency world as an apparition. It is everywhere but no one can see it.
Transactions are carried out in trillions of dollars without bullion vans hauling the medium of transaction from one point to the other in those dangerous trips that put policemen in harm’s way.
Ironically, cryptocurrencies are more secure than any currency issued by any of the world powers. No one has ever forged a cryptocurrency because of its invisible presence. Depositors have been scammed globally as cyber thieves hack into their bank accounts and withdraw billions of dollars. No one has ever hacked into a cryptocurrency account. The transactions are encrypted and securely protected through the invincible cryptographic technology.
Cryptocurrency is therefore like America’s Stealth bomber. It strikes the target before the defenders could pick it in the radar. Cryptocurrencies have beaten the radars of monetary regulators worldwide.
The evil of cryptocurrencies is in its invincible security and intractableness. They have given monetary regulators obdurate nightmares. CBN has been battling with that nightmare for years now. On February 5, the apex bank in apparent frustration decided to throw away the baby with the bath water. CBN is particularly worried about the difficulty in tracking cryptocurrency transactions.
However, what probably would be CBN’s greatest nightmare with cryptocurrencies is its defiance of liquidity control.
In an economy where the activities of Islamic lunatics in the North-east and murderous Fulani herdsmen in other parts of the country have set food inflation spiraling out of control just as massive depreciation of the naira fuels headline inflation, the CBN had relied heavily on liquidity control to tame inflation surge.
Cryptocurrencies are out of CBN’s liquidity control. They have the power to do just what the CBN plans to stop when it slams liquidity squeeze on banks either through lending rate or liquidity ratio hike.
Nigerians transact businesses in millions of dollars daily with bitcoin and other cryptocurrencies as medium of transaction. CBN has no way of tracking or regulating such transactions. Consequently, when CBN moves to tame inflation through liquidity squeeze, cryptocurrency transactions would flood the system with invisible cash that have the purchasing powers of bank notes. For fueling inflation, cryptocurrencies could be as inflammable as naira depreciation or poor harvests.
CBN is so powerless over the tracking of cryptocurrency transactions that it was the U.S. Federal Bureau of Investigation (FBI) that alerted it of millions of dollars in dirty money entering Nigeria daily through cryptocurrencies.
Nigeria is very vulnerable to the evils of cryptocurrencies. Nigeria’s recent corruption perception rating by Transparency International (TI) is a sad reminder of the endemic treasury looting wrecking Africa’s largest economy.
Nigeria scored a scant 24 per cent to emerge 149 in a list of 160 nations rated by TI.
The simple truth from Nigeria’s unfathomable magnitude of corruption is that treasury looters would just convert their loots to cryptocurrencies where they would remain untraceable.
Unfortunately, most of the bribery perpetrated in Nigeria today are paid in cryptocurrencies through encrypted transactions that no one can trace. Given its uninhibited level of corruption, Nigeria would probably be the biggest casualty of the novel medium of transactions known as virtual currencies.
Even Nigeria’s embattled taxman would have his problem compounded by the evils of cryptocurrencies. Nigeria has one of the lowest tax to gross domestic product (GDP) ratio in the world. Where Cote D’Ivoire, a miniature economy in West Africa ranking a distant 73 in global GDP scale, rakes in 17 per cent of its GDP as annual tax revenue, Nigeria, the world’s 27th largest economy, toils to squeeze out a paltry 6.5 per cent of GDP as tax revenue.
Cryptocurrencies could force the poor outing by the Federal Inland Revenue Service (FIRS) to plummet precipitously.
Smart tax evaders could respond to FIRS raid on tax evaders accounts by converting their bank deposits to cryptocurrencies where no one could trace. By implication, cryptocurrency could metamorphose into a new Switzerland with potential for tax evasion and money laundering haven.
Before 2001, Switzerland was the haven for lodging stolen funds from Africa, Latin America and some primitive Asian countries. Cryptocurrencies have more of the secrecy of Switzerland’s bank accounts and might conveniently replace them.
Yemi Osinbajo, Nigeria’s vice president, has joined the Babel of voices condemning CBN’s move against cryptocurrencies. However, the apex bank probably weighed the options and concluded that the evils of cryptocurrencies far outweigh its gains at the moment.
With the ban, CBN has defiantly cut the nose to spite the face. That should be an ad-hoc measure rather than a permanent solution.
Nigeria should fight corruption, stem the evils of cryptocurrencies and return to the mainstream of rich developed nations legalizing transactions in the novel currencies.
Cryptocurrencies are here to stay. The few backward nations banning them are swimming against a tidal wave that could drown their economies.