By Emma Ogbuehi
The Central Bank of Nigeria (CBN) has explained its ban on the use of cryptocurrencies in the country, saying that it is to protect Nigerians and the nation’s financial system from the illegal nature of such currencies and the inherent risks associated with them. It also stated that the use of such currencies is against the laws of the land. The explanation was contained in a statement signed by the Bank’s Acting Director, Corporate Communications, CBN, Osita Nwanisobi, on Sunday.
CBN had on Friday January 5, ordered banks to close all accounts relating to crypto currency transactions – an action that elicited mixed reactions from many Nigerians. In reaction, the CBN said the regulatory directive became necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto assets transactions, which have escalated in recent times, with dire consequences for the integrity of the financial system and financial stability.
The statement added; “Due to the fact that cryptocurrencies are largely speculative, anonymous and untraceable they are increasingly being used for money laundering, financing terrorism and other criminal activities. Small retail and unsophisticated investors also face high probability of loss due to the high volatility of the investments in recent times.”
“First, in light of the fact that they are issued by unregulated and unlicensed entities, 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 are a direct contravention of existing law.
“It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and cryptocurrencies. As the names imply, while Central Banks can issue Digital Currencies, cryptocurrencies are issued by unknown and unregulated entities.
“Second, the very name and nature of “cryptocurrencies” suggests that its patrons and users value anonymity, obscurity, and concealment. The question that one may need to ask therefore is, why any entity would disguise its transactions if they were legal.
“It is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion. Indeed, many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities. “In fact, the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known. They have also been recent reports that cryptocurrencies have been used to finance terror plots, further damaging its image as a legitimate means of exchange.
“More also, repeated and recent evidence now suggests that some cryptocurrencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices. Because the total number of Bitcoins that would ever be issued is fixed (only 21 million will ever be created), new issuances are predetermined at a gradually decelerating pace.
“This limited supply has created a perverse incentive that encourages users to stockpile them in the hope that their prices rise. Unfortunately, with a conglomeration of desperate, disparate, and unregulated actors comes unprecedented price volatility that have threatened many sophisticated financial systems. In fact, the price of ether, one of the largest cryptocurrencies in the world, fell from $320 to $0.10 in June 2017. The price of Bitcoins has also suffered similar volatilities.
“At this juncture, the CBN would like to assert that our actions are not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.
“To the contrary, the Nigerian payment system has evolved significantly over the last decade, leapfrogging many of its counterparts in emerging, frontier and advanced economies propelled by reforms driven by the CBN. This is evident from the variety of participants, products, channels, cutting-edge technology in the payments system.
“It is also validated by the astronomical growth of volume/value of transactions and the fact that Nigeria is an investment destination of choice for international financial technology companies because of CBN’s policies that have created an enabling investment environment in the payments system.”
Despite the explanations, many Nigerians insist that there could have been other ways of checking illegal electronic transactions than outright ban of the cryptocurrencies. Former Deputy Governor of the CBN, Kingsley Muoghalu, for instance, argued that remittances coming into the country through the cryptocurrencies, were so much to be lost on the basis of the reasons offered by the apex bank. Ojonuba Jeremiah, a Twitter user, argued that “even without crypto, criminals have always found a way around outsmarting the system”. He added that people should be allowed to choose how they interact with any asset or liabilities.
