CBN’S BAN ON CRYPTOCURRENCIES IN NIGERIA: A REVIEW

Introduction

The Central Bank of Nigeria, on the 5^th of February 2021 announced a ban on the buying and selling of cryptocurrencies through banks and other financial institutions in Nigeria. The ban was announced via a circular by the country’s apex bank.

The circular reiterated the directive in a 2017 circular previously issued by the apex bank in the exercise of its regulatory functions, to the effect that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges in Nigeria is prohibited.

The outright ban came as a shock to many, especially those in the crypto industry, due to the fact that there was no communication beforehand from the CBN. While it was expected that some kind of regulation or measures would be put in place in the future, the outright ban came as a total shock to a lot of individuals and investors.

It should be noted that Nigeria is the second largest cryptocurrency market in the world and several corporations and entities are beginning to embrace the idea of a digital currency.

What is cryptocurrency?

Cryptocurrencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography. Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation. While there are a number of cryptocurrencies now in circulation, Bitcoin was the first to be introduced in 2009, and now accounts for about 68% of all cryptocurrencies.

One of the most loudly touted advantages of cryptocurrencies is that they are above regulation due to the fact that it is highly decentralized. That remains true.

This brings into consideration the question of how the CBN actually plans to ban cryptocurrency. What the CBN has actually done is to place an outright ban on the buying and selling of cryptocurrencies in the regulated financial and non-financial institutions in Nigeria such as the Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs), and Other Financial Institutions (OFIs).

All regulated institutions are to identify persons and/or entities dealing in cryptocurrencies within their systems and forthwith close such accounts failing which there would be severe regulatory sanctions on financial institutions that refuse to co-operate with the CBN’s directive.

You may then want to ask if the CBN, who isn’t the provider/issuer of the cryptocurrencies, can ban its trade or transaction therein. The short answer is yes. Think of it this way, the CBN only mints fiat money, it neither produces gold nor does it control the availability of gold. However, it can stop banks and other financial institutions from allowing people within the system to buy gold. This falls squarely within the apex bank’s regulatory functions as enshrined in the CBN Act (2007).

What is the reason for, and impact of the ban on Nigerians?

The CBN has given justification for the ban of cryptocurrency in Nigeria. One of the major reasons, as contained in the CBN’s response to the regulatory directive on cryptocurrencies (a press release issued by the apex bank on the 7th of February, 2021), is that cryptocurrencies are issued by unregulated and unlicensed entities and as such, that their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria. In effect, the use of cryptocurrencies in Nigeria is a direct contravention of existing law.

Also, the CBN posited that the crypto, as its name and nature suggest, is shrouded in secrecy. This anonymity, obscurity, and concealment feature of cryptocurrencies have, according to the CBN, made cryptocurrencies well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion. To maintain sanity in the financial sector in Nigeria, and protect the financial system and the generality of Nigerians it was imperative that the CBN steps in.

While the ban does not criminalize the ownership of crypto, it makes owning and trading it more difficult for everyday people as hitherto, most crypto exchanges partner with fintech companies to transact with bank customers in Nigeria. The partnerships enable them to process debit card and direct transfer transactions to their crypto wallet. Based on the instructions in the recently issued circular, the banks cannot continue to provide those services.

By way of respite, the CBN has reassured citizens that the ban is not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.

Conclusion

The crypto market is a rave throughout the world and we would like to believe that all is not lost for it in the country. While the CBN has expressed that it has no comfort in cryptocurrencies at this time, it is hoped that it will reconsider its position soon.