By Amechi Ogbonna
Last June when the Central Bank of Nigeria (CBN) announced plans to launch a digital currency later this year, many who followed the controversy around the use of digital and cryptocurrency suddenly realised that some recent pronouncements and actions of government in that regard may have been misunderstood.
The government’s change of stance came barely five months after the Central Bank of Nigeria (CBN) in January of 2021, barred deposit money banks and other financial institutions from operating or engaging in any form of virtual currency.
The apex bank’s advice contained in a circular by its Director of Financial Policy and Regulation Department, Mr. Kevin Amugo, came against the backdrop that transactions on Virtual currencies (VCs) such as bitcoin, ripples, magneto, litecoin, dogecoin, peercoin, one-line, among others, in the banking industry though not yet recognised as legal tender in Nigeria, are already being traded in exchange platforms that are still unregulated all over the world.
A virtual currency or virtual money was defined in 2012 by the European Central Bank as “a type of unregulated, digital money, issued and controlled by its developers, used and accepted among members of a specific virtual community.
The CBN circular had explained that because these payments and exchanges using VCs were largely untraceable and anonymous, making them susceptible to abuse by criminals, especially in money laundering and terrorism financing, should not be accepted by any bank or finance house under its purview.
Consequently, DMBs were urged to ensure that they do not use, hold, trade, and/ or transact in anyway in virtual currencies; and to ensure that existing customers, that are virtual customer exchangers have effective AML/CFT controls that would enable them comply with customer’ identification, verification and transaction monitoring requirements.
The above brief had indeed sent shockwaves across users of the currency in the nation’s banking industry who were already beginning to get excited at the progress it had recorded so far in several economies across the world.
Last year when the digital and cryptocurrency issue took the centre stage of payment and investment optimisation debate, some Nigerian stakeholders who did not understand the import of the CBN directive, felt the apex bank was in fact against the deployment and use of digital currency in the country, ignoring its cautious strategy.But much of that apprehension appears to be dying down after the CBN Director of Information Technology, Rakiya Mohammed, announced that the apex bank would launch it’s digital currency before the end of 2021.
According to her, the CBN digital currency would be accessible to all Nigerians.
“Just like everybody has access to cash, everybody will have access to the central bank’s digital currency.” she pointed out.
She also said that the decision to introduce the currency this year followed over two years study of the concept to identify its inherent risks and opportunities for Nigerian users.
This is also coming as the Securities and Exchange Commission (SEC) in its statement in September 2020, admitted that digital assets offerings provide alternative investment outlets for the Nigerian investing public; stressing it was needful to ensure they operate in a manner consistent with investor protection, public interest, market integrity and transparency.
The Commission said its general objective of regulation was not to hinder technology or stifle innovation, but to create standards that encourage ethical practices which would ultimately make for a fair and efficient financial market.
According to the SEC, Section 13 of the Investment and Securities Act, 2007 confers powers on it as the apex regulator of the Nigerian capital market to regulate investments and securities business in Nigeria.
“Consequently, the SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.”
“The position of the Commission is that virtual crypto assets are securities, unless proven otherwise. Thus, the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.” The regulator further said.
It further clarified that Issuers or sponsors are expected to satisfy the burden of proof that the virtual assets do constitute securities by making an initial assessment filing. However, where the finding of the Commission is that the virtual assets are indeed securities (not structured to be exclusively offered through crowdfunding portals or other exempt methods), then the issuer or sponsor must register the digital currency.
However, going by the level of its adoption and utilisation across the globe, many have taken promoters of digital assets to task over their potential benefits to the national economy in the context of international operations especially now that the digital currency fever seems to have cut up with much of the global tech savvy youths.
Amidst this frenzy, financial sector regulators across the world including the Central Bank of Nigeria and the Securities and Exchange Commission say they are also leaving no stone unturned in the effort to ensure that stakeholder fears and anxieties on the safety and security of the currency are addressed.
But suffice it to say however that the Federal Government’s new policy on digital currency obviously sets to create a new paradigm shift that will eventually set the stage for resolving doubts about digital or cryptocurrency operations in Nigeria.
For millions of Nigerians calling for its deployment say it is needful at a time the American Greenback is becoming relatively scarce and no long sufficient for those who need it for importation and related purposes.
Already investment analysts who spoke to Daily Sun on the raging digital money discourse say Nigeria cannot afford to wait any further after China its key trading partners had launched its pilot electronic Chinese yuan (e-CNY) programs in four cities in April of 2020.
China’s digital currency’s debut was the culmination of a six-year journey that began when its central bank, the People’s Bank of China (PBOC), announced its research into a “Digital Currency/Electronic Payment” system in 2014.
Today, however, although many critical details of the payment system remain opaque or undecided, e-CNY pilots are rapidly accelerating in scope and size according to expert investigations into the scheme.
There are also strong indications that in the coming years, the e-CNY will likely be deployed across China as part of Beijing’s focus on bolstering domestic financial security. The e-CNY could also be used to navigate international transactions around payment systems and networks that can be shut off to Chinese financial institutions serving U.S.-sanctioned entities.
The e-CNY is also a legal tender, meaning no entity in China can refuse it. Like paper Chinese currency—another form of legal tender—its issuance is facilitated by the PBOC. One e-CNY is worth the same as one yuan in paper currency, and each will be exchangeable with the other.
Nigeria’s central bank has began looking at the economic benefits of its new currency as Mrs Mohammed spoke of it complementing paper currency notes upon deployment.
Another reason the authorities plan to come up with digital currency is to make remittances travel faster and easier from abroad to Nigeria. The digital currency would accelerate the ability to meet transaction target, regardless of one’s country of residence.
But while several financial regulatory authorities around the world have been lethargic with their adoption due to some inherent risks, the latest development in Nigeria shows that the CBN is alsoin tune with the mood of the nation’s youths and other stakeholders who are already craving for its deployment as a legal tender.
Some technology experts have since listed the qualities of the digital transactions to include the fact that once executed, it remains irreversible as there are no room for corrections.
For the CBN, implementing a managed digicurrency regime like China, does not foreclose the reality that digital currencies are not backed by a central bank, a national or international organisation, or assets or other credit, as their value is strictly determined by the value that market participants.
These are among the major concerns that led the apex bank to set up a committee to consider how to manage them for best outcomes.
With a commitment to safety and soundness of the banking industry, the CBN had started the journey of launching its digital money by setting up a study group to identify the likely pitfalls to enable it play a central role in the emerging dispensation, failing which the scheme could be compromised by criminal elements in money laundering and terror financing.
In addition, national digital currencies can actually accelerate payments, increase transaction volumes and thereby increase the level of GDP, which has fallen sharply due to the coronavirus pandemic.
Commenting on the desirability of Nigerian adopting a digital currency, President, Phamaceutical Society of Nigeria PSN, Sam Ohuabunwa, said, I believe anyone not going digital now is not going forward. That was why we were embarrassed when they were fighting crypto currency.
Digital currency is the future and crypto currencies is the trend now. You cannot fight the future or trend.
I’m glad they are coming back to face the reality of the fact that the world is going digital in all aspects and virtual.
Any institution fighting against that digital currency is only kicking against the block.
The crypto currency and its likes is the future. Fighting them is like trying to resist the future or what is obvious. Everything is being digitized. If the CB N has woken up to face the reality of the time it’s good idea and a welcome development. The earlier, the better.
On the economy, the crypto or the digital currency will provide alternative exchange mechanism, that will not be directly under the manipulation of government forces. Governments manipulate their currencies and exchange rates but things like crypto currencies are not subject to such manipulations, that is why govt institutions try to fight it.
It gives a different measure or store of value from using national currency Rather than use dollar or pounds alone in exchange, we use another mechanism that gives the buyer , sellers and exchangers of value different opportunities . So it will democratise economic transaction and create a greater stability because the kind of currency manipulations you see with the kind of currencies we use today may be eliminated. I believe at the end it’s going to be positive.
It will reduce cost of transaction and create greater window for more people to get into the economy including young people who are probably not in the economy space or limited. But with the digital currency, you can tracsend space and trade anywhere in the world from your room.
There will always be risks . So public regulatory agencies should try and see how they can put up regulations because without regulations the policy will be abused. Rather than fight, it can be regulated to protect everyone .
Anything digital is dynamic and progressive can also be subject to infiltration like hacking, tracking. So we need to be careful to ensure we construct this media with a lot of safety valves and create such level of redundancy that will be able to detect abuses.
Also reacting Head of Research at FSL Securities – Victor Chiazor stated “The truth is that the initial ban by the CBN did not sit well with most people as they felt they were a bit to quick to issue a ban telling commercial banks to stop transactions with regards to cryptocurrency and for me a lot of research needed to be done. It has come to stay whether we like it or not as it is a new asset class just like when people trade FX , derivatives, shares and so I think cryptocurrency will be a new asset class. What the government needs to do is to build a system that finds a way to regulate cryptocurrency transactions around the Nigerian sovereignity because there are fears of money laundering and crime and it will definitely be there just as we have in cash transactions and other instruments. So what the CBN needs to do is build regulations round it and reduce the level of criminality that would come with it, if that is done, that will bring some form or level of liquidity into the system because Nigeria still accounts for about top 10 of crypto-traders and so whether we like it or not, Nigerian populace especially the youths are interested in that segment of the market. We need to build regulations around it and see how the economy at large can benefit either by building regulations around taxing so that we can generate a level of income from it especially as we are currently short on revenue generation. Bring stakeholders together, build a framework that will reduce the criminality around that segment.
This new policy is not really clear and so I think the CBN needs to clarify it well as regards to digital currency because for me, we need to be clear as there would be questions like; is it convertible to cash? Is it going to be remain strictly digital? Is it going to be tradable? Is it going to be listed on an exchange or is it going to be transferrable like the Naira on our mobile banking apps?