By Chinenye Anuforo,
Experts across different sectors have said regulating the cryptocurrency market in Nigeria was the better approach to deriving the benefits that come with the market, instead of an outright ban.
Senator Ihenyan, president of Stakeholders in Blockchain Association of Nigeria (SiBAN), stated that he has made efforts since 2017 to engage the Central Bank of Nigeria (CBN) to regulate the cryptocurrency market in Nigeria, to no avail.
He said regulation was the approach most developed countries in the world have taken, which has seen some come up with a robust regulatory framework. The United States currency regulator recently allowed banks to trade in stablecoins. Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference like the U.S. dollar. Similarly, Singapore, Iceland, and Malta have become top destinations in blockchain investment because of their approach to regulating the market.
While speaking on a television programme, former presidential aspirant and deputy governor of the CBN, Dr. Kingsley Moghalu, said although the directive from the apex bank was not the best approach, clarification should be made that it was a ban on financial institutions trading in cryptocurrencies, not on trading activities. It mainly targets cryptocurrency exchanges. Hence, it does not criminalise individuals trading in cryptocurrencies. Individuals would have difficulties in making transactions since the activities of the exchanges are limited.
“The CBN has said it is not a legal tender but they don’t have to tell you or me what we can exchange for value. If I want to give you my shirt and you give me your shoes, the Central Bank has no business with it,” Moghalu said.
The CBN had recently issued a directive to deposit money banks (DMBs), non-financial banks, and other financial institutions not to provide banking services to entities dealing in cryptocurrencies, including exchanges.
On Sunday, the apex bank issued a statement explaining that it did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade, and/or transact in cryptocurrencies. Indeed, this position was reiterated in another CBN press release dated February 27, 2018.
This is not accurate, however, as the 2017/2018 document placed the mandate on the banks to ensure their virtual currency exchange customers had anti-money laundering (AML) and combating financial terrorism (CFT) controls as well as effective know-your-customer (KYC) and transaction monitoring. The 2021 document effectively takes that privilege from the banks and instructs closure of any account associated with cryptocurrency with immediate effect and promises of severe regulatory sanctions for failure to comply with immediate effect.
In addition, contrary to the claim that their position was not an outlier and going ahead to mention a number of non-related economies like Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal, and Cambodia, developed economies like Japan, South Korea, Switzerland, Singapore, Portugal, USA, U.K., Canada Australia, and France all have positive dispositions towards crypto, with Germany recognising bitcoin as a means of payment as far back as 2018.
“The reference to quotes from the likes of Warren Buffet is a classic example of the one-side story, which failed to highlight the fact that the current richest man in the world is pro-cryptocurrency and publicly quoted companies like Tesla, NYDIG, and Microstrategy hold a chunk of their treasury in cryptocurrency,” said an expert who pleaded anonymity.
Since the letter went out, fintech firms that do not provide crypto exchange services like Risevest and Bamboo have also suspended deposits on their platforms.
There were firms that have invested in crypto-assets with funds their users provided, which have been experiencing difficulties in fulfilling their financial obligations to the users. Exchanges like Luno, Quidax, and BuyCoins were among the first to suspend deposits of naira on their platforms.
Aside from facilitating $500 million in transactions in the last five years, according to Moghalu, the cryptocurrency market employs hundreds of Nigerians and have also created new value chains that are bound to be impacted by the CBN decision. Investors in the blockchain (as well as other industries) would also not be heading Nigeria’s way for as long as the CBN prohibition holds.
“For me, what is saddening is that they do not see the need to explain beforehand and secondly, pull in the stakeholders to find a workable middle ground before throwing out the baby with the bathwater,” Daniel Eze, a project manager said.
For Moghalu the increasing adoption of cryptocurrencies in Nigeria and the instability that it brings to the economy should have been enough for the CBN to explore a different approach. The Nigerian economy is still in recession and the foreign exchange continues to be limited for manufacturers and other businesses that need it for daily operations. He also noted that the world is going digital, hence there is a lot of innovation and cryptocurrencies are part of that.
“My attitude would have been how can we best manage the risks of cryptocurrencies to ensure that they do not affect the stability of the financial system. But I would not recommend banning it outright in exchanges because $500 million worth of bitcoin has been traded in Nigeria within the last five years. Nigeria is one of the top ten countries in the use of cryptocurrencies in the world today. In fact, it comes in at 8 after countries like Ukraine, South Africa, Kenya, and so on. It is becoming a real factor in our financial system or investment ecosystem and this is livelihoods from Nigerians. So when you take actions that look as if you are taking away opportunities from Nigerians, especially in a depressed economy,” he said.