Islamic Finance

Experts urge central bank of Nigeria to regulate cryptocurrency

Published 11 Feb,2021 via The Nation - Experts across various industries have advised the Central Bank of Nigeria (CBN) to regulate but not ban cryptocurrency because of the benefits it offers to innovative youths.

President, Stakeholders in Blockchain Association of Nigeria (SiBAN), Senator Ihenyan, said the group had made efforts since 2017 to engage the CBN to regulate the cryptocurrency market in the country but to no avail.

According to him, regulation is the approach most developed countries have taken which has 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 US dollar. Singapore, Iceland, and Malta have become top destinations in blockchain investment because of their approach to regulating the market.

Former Deputy Governor of the CBN, Kingsley Moghalu, had also faulted the apex bank over the ban. “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 shoe the Central Bank has no business with it,” Moghalu had said.

The CBN had last Friday issued a directive to deposit money banks (DMBs), non-financial banks, and other financial institutions not to provide banking services to entities dealing with cryptocurrencies including exchanges.

On Sunday the apex bank issued a statement, explaining that it did not place any new restrictions on cryptocurrencies, given that banks 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 exchanger 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.

They argued that economies such as Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal, and Cambodia, developed economies like Japan, South Korea, Switzerland, Singapore, Portugal, USA, UK, 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,” an expert said.

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 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 10 countries in the use of cryptocurrencies in the world today. In fact, it comes in at eight 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.

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Lucas Ajanaku