A week ago, the Central Bank of Nigeria (CBN) issued a circular mandating Commercial Banks and other Financial Institutions to identify customers who transacted in cryptocurrency and to close their accounts immediately.
Investopedia defines cryptocurrency as a digital asset based on a network that is distributed across a large number of computers, known as Blockchain, that allows this encrypted currency to exist outside the control of governments and Central Banks.
Following runs on the Naira, devaluation and limited access to forex, Nigeria saw a spike in the adoption of crypto for international trade with a lot of Nigerian fintechs incorporating it as a medium of investment and exchange.
Bitcoin trading in Nigeria from 2015 – 2020 was valued by Paxful and Coin Dance to have exceeded $566 million and ranked second globally after the United States with the value of trades in 2020 alone exceeding $213.7 million.
The CBN’s directive runs contrary to the Security Exchange Commission’s September 2020 intentions of creating a conducive environment for the growth and development of Virtual Financial Assets including Cryptocurrencies.
SEC had stated at the time, that all Blockchain–based offers of digital assets within Nigeria or targeting Nigerian investors would be subject to the Commission’s regulations.
The CBN directive also counters the National Information Technology Development Agency (NITDA)’s recommended National Blockchain Adoption Strategy which aims to generate up to $10b by 2030 through Cryptocurrency, and other, transactions.
These previous Government positions created a supportive environment for the adoption and trade of cryptocurrencies, allowing it to become a backbone of some fintechs and positioning the country as being favourable to the technology.
This is why the unexpected directive was met with confusion as it appears to be another policy U-turn that was not advised by stakeholders, operators, or the regulator. Yet another policy that does not ease business or innovation.
Without question, the CBN as Nigeria’s apex bank has superseding authority on all sovereign fiscal issues and policies.
CBN, like all other central banks, lacks control over cryptocurrency and by its very nature, crypto can and has been used to fund nefarious activities including gun running, money laundering and terrorism, but so have regular bank accounts.
In making its’ case, the CBN listed other countries, including China and Canada, which have placed restrictions on cryptocurrency trading.
However, China is actually leading the race to Central Bank Digital Currencies after testing in September 2020 and is currently rolling out adoption on some e-commerce platforms.
Also, the Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and Bank for International Settlements are all currently collaborating on a study of common foundational principles and core features of a CBDC.
Furthermore, in 2020, Germany passed a regulation accepting all forms of digital securities as part of their national Blockchain strategy.
In a 2020 report, PwC estimated that Blockchain, the technology which houses cryptocurrency, could boost the U.S. economy up to US$1.76 trillion by 2030 as a result of substantially improved tracking, tracing and trust.
These other countries have taken a more pragmatic approach – researching the prerequisites and developing principles for the adoption of a technology that is beyond anyone country’s geography or control.
The previous positions of the SEC and NITDA seemed to indicate that the country was open to this technology; NITDA also has a draft Nigeria Blockchain strategy and we look forward to a consolidation of all these positions as we await CBN’s review of the situation.
Again, the CBN has valid reasons for being cautious about cryptocurrencies but perhaps other steps could have been taken before stopping trades and requesting that accounts trading in crypto be closed and reported.
These steps should have included stakeholder sessions with operators and regulators to draft frameworks for sustainable and equitable adoption. It would also be helpful to understand the Federal Government’s long-term strategy on Blockchain, so all stakeholders can feed into same.
A lack of clarity on, or commitment to, a national strategy increases the likelihood of seemingly arbitrary policies which by extension reduce Nigeria’s attractiveness as an investment destination
The Nigeria Bureau of Statistics recently advised that foreign investment inflow into the country fell by over 100% from $23.9b in 2019 to $9.7b in 2020. Similarly, StartupBlink’s 2020 Startup Ecosystem Report showed that Nigeria had lost its previous position as a top three African startup ecosystem to Rwanda.
Interestingly, the report showed that while the quality and quantity of startups increased; the Country’s business score decreased substantially. This indicates that while the ecosystem is churning out startups like Paystack, the environment is not supporting with policies that enable innovation.
Technology is evolving at an exponential rate and the Government must make efforts to understand and embrace it. Stakeholders including startups and industry leaders should be involved in policy discussions and frameworks with the intent to understand and improve, rather than avoid and hinder.
The ecosystem cannot be left out of strategic discourse that directly affects our innovators. Blockchain and cryptocurrencies are not going away.
We believe that the CBN is taking tangible steps to create systems for the adoption and safe deployment of this technology for the sake of our currency and economy.
However, these decisions should receive active and continuous input from those who understand and work with the technology so this and other subsequent policies are more inclusive for the sake of innovation and economic growth.
About the author
Nneka Ukay is a business and innovation management professional with varied over 17 years’ experience working predominantly with multinational organizations. She is currently the Executive Secretary at Innovation Support Network (ISN Hubs), a community of over 100 innovation and technology Hubs that champions policy, drives collaborations and promotes structures to grow Nigeria’s innovation ecosystem.
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