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The Central Bank of Nigeria has banned banks from servicing crypto exchanges in the country in a move that echoes actions taken by its Indian counterpart back in 2018. Reactions to the news have been divided along ethnic and geopolitical lines, with the more progressive elements calling for a nuanced approach from the apex bank.
Nigeria's GDP declined for a second quarter in a row in November 2020, plunging the economy into another recession — the country's second in a couple of years. According to the Nigerian Bureau of Statistics, 26 of the 36 states in Nigeria did not receive any foreign investments in the year 2020.
Prior to the arrival of the coronavirus pandemic, Nigeria’s economy had suffered from mismanagement and ineptitude and has been identified as part of the current government. Meanwhile, the country’s cryptocurrency economy had grown rapidly at the same time.
Nigeria has become a hub for crypto adoption, with Google Trends data showing the country as No. 1 in the world in terms of search interest for Bitcoin (BTC). Starved of forex, Nigerians have sought to preserve their wealth through cryptocurrencies, as the naira is rapidly falling.
CBN not a fan of Bitcoin
Earlier in February, the CBN issued a circular directing all financial institutions to cease rendering services to crypto exchanges. Also mandated by the notice is that banks shut down any accounts belonging to individuals or entities found to be engaging in cryptocurrency trading activities.
To defend its position, the central bank tapped into the usual arguments: volatility, money laundering, terrorist financing, Silk Road, and what they termed “rat poison.” It even highlighted the actions taken by Bangladesh, Ecuador, Egypt, and Nepal, among others, as justification for its ban. In a statement clarifying its position, the CBN remarked:
“The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto assets transactions.”
In the midst of the furor caused by the prohibition, the central bank officials stated that the announcement was not a new decision but rather was a restatement of their position from 2017. While the 2017 communique in question only warned banks that they should not hold or trade cryptocurrency, it did not mention a ban on financial institutions providing account services to cryptocurrency exchanges.
Nigerian crypto proponents who spoke to Cointelegraph about the promise of anonymity to prevent negative action from their banks, see something sinister with the CBN’s action. In addition, some members of the community claimed the ban is part of an effort to support “their friends” in the Bureaux de Change business.
Principal actors in the BDC scene have endorsed the move, calling it a step in the right direction in anti-money laundering efforts. Meanwhile, crypto trading in Nigeria was subject to strict Know Your Customer protocols. These protocols included verification steps, which included that all-important bank verification number.
With the CBN blocking foreign remittances in naira, crypto adoption was gaining even more ground in Nigeria. Many techno-adept Nigerians unhappy with the servicing & rates charged by the giant BDC industry could have access to foreign exchange via cryptocurrencies such as fiat-pegged stablecoins.
The government is continuing to put pressure on the anti-SARS protestors that are expected to demonstrate on October 20th, 2020 against the rogue police unit implicated in multiple extortion and extrajudicial executions. When banks closed the accounts of those supporting the protests, many washed their hands of their bank accounts and started using cryptocurrencies as a method of circumventing the attempted financial censorship.
The crypto criminal question
According to the CBN, the government has received complaints from the United States Federal Bureau of Investigation regarding the activities of scammers who are using cryptocurrency. Indeed, back in July 2020, Cointelegraph reported on an FBI complaint about alleged Nigerian scammers using cryptocurrency to siphon millions of dollars.
Even the CBN went further to exaggerate the use of crypto by criminal enterprises, stating: Because so many uses of cryptocurrencies have been associated with illegal activities, numerous financial institutions and investors with high reputations have shied away from cryptocurrency investment.
Although there have been cases where cryptocurrencies have been used criminally, their volume of transactions is insignificant in comparison to the overall global crypto transaction matrix. In its 2020 crypto crime report, blockchain intelligence firm Chainalysis revealed that only 0.34% of the cryptocurrency transactions in 2020 were involved in illicit activity.
Furthermore, the report indicated a decline in crypto-crime as the volume of cryptocurrency trading almost tripled between 2019 and 2020. In a conversation with Cointelegraph, Danny Oyekan, founder of blockchain firm Dan Holdings, remarked that the CBN’s rhetoric only deflects from the true utility of cryptocurrencies, adding:
“For a long time, crypto has been associated with nefarious activities, but in reality, fiat currency is used 10x more than crypto for criminal purposes. [...] Banning access to crypto will affect a country more negatively than the criminal activity the industry is falsely associated with.”
David Ajala, CEO of NairaCointelegraph quoted Ex — one of Nigeria’s oldest Bitcoin exchange platforms — to say it was wrong for the CBN to classify cryptocurrency as a tool for crime, saying, “it is a false narrative to conclude that most cryptocurrencies are used for criminal activities.” He added:
“It is the job of the regulatory body to start figuring out ways to curb illegal activities on the blockchain just the same way processes and framework are used to curb illegal activities using fiat, and we believe one of the best ways is for regulatory bodies to work with crypto-fiat exchanges, as exchanges currently serve as gatekeepers for people dealing in cryptocurrencies.”
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While still in its early days, the CBN ban seems to have done little to alter Nigeria’s established hyperbitcoinization culture. While it has been in effect for only a few days, the CBN ban doesn’t seem to have changed much about Nigeria’s hyperbitcoinization culture. For Ajala, the economic benefits associated with crypto involvement far outstrip any inconveniences occasioned by the CBN ban, adding:
“Cryptocurrencies have served as economic empowerment to millions of Nigerians using trading as a source of income and have become a hedge against a high inflation rate of over 15% in the country.”
According to him, the booming crypto industry has contributed to solving the unemployment crisis in the country. Indeed, Nigeria’s unemployment rate has more than tripled over the last five years, a situation further worsened by the COVID-19 pandemic. Wordtune couldn't crunch your text. Try it on a shorter text. Unemployment in Nigeria has more than tripled over the past five years, and the COVID-19 pandemic has further inflamed the situation. They have all employed thousands of Nigerians.”
For Oyekan, Nigeria stands to benefit a great deal from policies aimed at supporting the burgeoning crypto market. “Nigeria ranks eighth in global adoption of cryptocurrency and is ranked first in peer-to-peer payments, moving $139 million in the past year,” he noted to Cointelegraph, adding:
“In emerging markets where local currencies are extremely volatile, providing access to a financial system, like the one crypto and blockchain technology provides, does more good than bad. It empowers the unbanked, aids in creating wealth, and creates financial stability.”
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Meanwhile, Nigeria’s Securities and Exchange Commission has halted its planned regulatory sandbox for crypto businesses following the CBN ban. As Oyekan points out, the central bank should consider more complex regulations rather than outright bans.
The finance ministry had previously been collaborating with the SEC to create a legal framework for crypto and blockchain in Nigeria. At the time, the move was seen as a significant step in boosting the country’s growing digital economy.
