The Central Bank of Nigeria has banned banks from serving crypto exchanges in the country, mirroring the measures taken by their Indian counterpart in 2018. The response to the news in the political class has been split on ethnic and geopolitical lines with progressive elements that require a differentiated approach from Apex Bank.
In November 2020, Nigeria’s gross domestic product fell for the second year in a row, plunging the country’s economy into another recession – the second in five years. According to the Nigerian Bureau of Statistics, 26 of the 36 Nigerian states did not receive any foreign investment in 2020.
Even before the coronavirus pandemic broke out, the Nigerian economy had suffered from the supposed mismanagement and incompetence of the current government. However, the country’s cryptocurrency economy flourished over the same period.
Nigeria has become a hub for the adoption of crypto. Google Trends data shows the country is number 1 in the world in terms of search interest for Bitcoin (BTC). The Nigerians who lack access to foreign currency are turning to cryptocurrencies to maintain their wealth against the rapidly falling naira.
CBN is not a fan of Bitcoin
In early February, the CBN published a circular directing all financial institutions to stop providing services to crypto exchanges. The notice also asked banks to close the accounts of individuals or organizations found to be conducting cryptocurrency trading activities.
The Nigerian central bank defended its position using the usual arguments: volatility, money laundering, terrorist financing, the Silk Road and “rat poison” among others. The CBN even highlighted the measures taken by Bangladesh, Ecuador, Egypt and Nepal, to name a few, as justification for its ban. In a statement clarifying its position, the CBN noted:
“The latest regulatory guideline became necessary to protect the financial system and the general public of Nigerians from the risks associated with transactions in crypto assets.”
Amid the excitement created by the ban, the central bank stated that the announcement was not a new decision, but a repeat of its previous position from 2017. However, the 2017 communique in question only warned banks against holding or trading crypto. There was no mention of a ban on financial institutions providing account services for exchanging cryptocurrencies.
For some crypto advocates in Nigeria who have spoken to Cointelegraph about the promise of anonymity to prevent negative actions by their banks, there is an insidious undertone to the action of the CBN. For one thing, some claimed the ban was part of an effort to help “their friends” deal with the exchange offices.
Indeed, key players in the BDC scene have advocated this move, describing it as a step in the right direction in terms of combating money laundering. Meanwhile, crypto trading on exchanges in Nigeria adhered to strict Know Your Customer protocols which included verification steps including the main bank verification number.
With the CBN blocking overseas transfers in naira, the introduction of crypto in Nigeria became even more important. Tech-savvy Nigerians dissatisfied with the services and exorbitant rates offered by BDC operators may have access to Forex through cryptocurrencies, particularly fiat-pegged stablecoins.
There are also rumors that the CBN’s action is part of the government’s ongoing crackdown on the October 2020 “EndSARS” protests against the special anti-robbery team – the rogue police, which are involved in numerous extortion and extrajudicial executions . As banks shut down the accounts of individuals and organizations that supported the protests, many switched to cryptocurrencies to circumvent attempted financial censorship.
The question of cryptocurrency
The government has received complaints from the U.S. Federal Bureau of Investigation about the activities of scammers using crypto, according to the CBN. Back in July 2020, Cointelegraph reported an FBI complaint about suspected Nigerian scammers using cryptocurrency to suck out millions of dollars.
The CBN went even further to exaggerate the use of crypto by criminal companies: “Many reputable banks and investors have been banned because of the harmful effects of the widespread use of cryptocurrencies for illegal cryptocurrency activities.”
While there are cases of criminal use of cryptocurrencies, the volume of such activities is insignificant compared to the overall global crypto transaction matrix. In its 2020 report on cryptocurrency, blockchain intelligence firm Chainalysis revealed that only 0.34% of cryptocurrency transactions in 2020 were involved in illegal activity.
The report also pointed to a decline in cryptocurrency as the volume of legitimate cryptocurrency trading nearly tripled between 2019 and 2020. Speaking to Cointelegraph, Danny Oyekan, founder of blockchain firm Dan Holdings, noted that the CBN’s rhetoric only deviates from the true usefulness of cryptocurrencies, adding:
“Crypto has long been associated with nefarious activity, but the reality is that fiat currency is used ten times more than crypto for criminal purposes. […] Banning access to crypto has a more negative impact on a country than the criminal activity that the industry is falsely associated with. “
David Ajala, CEO of NairaEx – one of Nigeria’s oldest Bitcoin exchange platforms – also criticized the CBN’s characterization of crypto as a tool for criminal activity and told Cointelegraph: “It is a misrepresentation to assume that the majority of cryptocurrency is used for criminal activity is used . ” He added:
“It is the regulator’s job to find ways to curb illegal activity on the blockchain, as well as using fiat processes and frameworks to curb illegal activity. We believe that one of the best ways for regulators to curb this work with crypto fiat exchanges as exchanges currently serve as gatekeepers for people trading cryptocurrencies. “
Crypto solves Nigeria’s skyrocketing unemployment
Even in its early days, the CBN ban seems to have done little to change Nigeria’s established hyperbitcoinization culture. With banks reportedly already closing accounts related to crypto trading, the country’s users are making even more use of peer-to-peer channels. For Ajala, the economic benefits of getting involved in crypto far exceed any inconvenience caused by the CBN ban, adding:
“Cryptocurrencies have served millions of Nigerians who use trade as a source of income as an economic boost and hedged against a high inflation rate of over 15% in the country.”
According to him, the booming crypto industry has helped solve the unemployment crisis in the country. In fact, the unemployment rate in Nigeria has more than tripled in the past five years, which has been made worse by the COVID-19 pandemic. Ajala added, “There are at least 100 startups in Nigeria that are in the blockchain industry either as exchanges, educators, digital asset management firms, etc. All of them employed thousands of Nigerians. “
For Oyekan, Nigeria will benefit greatly from measures to support the burgeoning crypto market. “Nigeria ranks eighth in global cryptocurrency adoption and first in peer-to-peer payments. It paid $ 139 million last year,” he told Cointelegraph, adding:
“In emerging markets where local currencies are extremely volatile, access to a financial system such as that offered by crypto and blockchain technology is more good than bad. It empowers the unbanked, helps create wealth, and creates financial stability. “
Oyekan believes the central bank should consider nuance rules, not direct bans. According to him, the CBN should set up a licensing system for crypto companies and consider keeping Bitcoin on its balance sheet.
Meanwhile, following the CBN ban, the Nigerian Securities and Exchange Commission suspended its proposed regulatory sandbox for crypto companies. According to the SEC, the decision was made because qualified companies are currently prohibited from having bank accounts in the country under the sandbox framework.
The Treasury Department had previously worked with the SEC to create a legal framework for crypto and blockchain in Nigeria. At the time, the move was seen as a significant step in boosting the country’s growing digital economy.
