THE BAN ON CRYPTOCURRENCY

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It may be good for the CBN to take another look at the ban

Vice President Yemi Osinbajo last Friday joined his voice to that of other stakeholders that have been campaigning against the prohibition of cryptocurrency operations in the country, arguing that “we must act with knowledge and not fear.” in a keynote address at a one-day economic summit in which the Central Bank of Nigeria (CBN) was one of the organisers, Osinbajo tasked both the apex bank and the Security and Exchange Commission (SEC) to provide a robust regulatory regime that addresses genuine concerns about the use of cryptocurrency.

It is recalled that the CBN had in February directed all deposit money banks (DMBs) and other financial institutions to desist from transacting in and with entities dealing in cryptocurrencies. According to the CBN, its latest restriction is only a reminder of a 2017 circular. The CBN further argued that the prohibition of cryptos was not peculiar to Nigeria, as certain levels of restrictions on financial institutions facilitating crypto transactions were applied in several other countries globally. The apex bank added similar pronouncements had been made in other climes based on the realisation of the significant risks that transacting in cryptocurrencies portend, including loss of investments, money laundering, terrorism financing, illicit fund flows, and criminal activities.

While it is difficult to fault the CBN for the restrictions on cryptocurrencies, not a few stakeholders have also argued that the apex bank’s action is tantamount to throwing away the baby with the bathwater because of the huge gains inherent in the digital currency trade. The flexibility in transactions provided by cryptocurrencies, their economic values, including job creation potential, among others, have become strong arguments in support of their existence.

Available data indicate that in the last five years, Nigeria has traded 60,215 bitcoins, valued at over $566 million. Apart from the United States of America, this is the largest volume worldwide on Paxful, a leading peer-to-peer bitcoin marketplace. The data scraped from Coin Dance shows that from the beginning of May, 2015 to the middle of November, 2020 bitcoin trade in Nigeria increased yearly, at least 19 per cent in volume since 2017. The highest volume (20,504.50) was traded in 2020. With the stark statistics, coupled with the hundreds of jobs created for players in the crypto trade, it would seem that a middle course is desirable rather than an outright ban.

To be clear, the CBN did not outlaw trade in crypto transactions; it only directed banks and other financial institutions to close the accounts used for cryptocurrency operations and desist from transacting in and with entities dealing in cryptocurrencies. But the CBN policy has elicited various reactions even from cryptocurrency traders, who feel that windows other than using the financial institutions were open. Many countries have adopted the CBN option only to discover that it was not a cure-all move. The US Federal Reserve (the equivalent of the CBN) is currently investigating the potential of a central bank digital currency (CBDC) as the backbone for a new, secure real-time payments and settlements system.

The move toward a form of government-backed digital currency in that country is being driven by Fintech firms and a banking industry already piloting or planning to pilot cash-backed digital tokens. We think this is the direction the CBN should be heading. While it is commendable that the apex bank is executing its regulatory mandate of protecting both national interest and that of bank depositors, the SEC intervention should be embraced. According to SEC, it has “engaged with the CBN and agreed to work together to further analyse, and better understand the identified risks to ensure that appropriate and adequate mitigants are put in place, should such securities be allowed in the future.”

That, we believe, is the right way to go.