The uncertain future of cryptocurrencies in Nigeria [ICT Clinic]

In one of the previous articles on my ICT Clinic column, I expressed my concerns about the Nigerian government’s draconian policies which do not take its citizens into consideration. Needless to say, it has happened again!

The cryptocurrency community along with its ardent supporters are perplexed and equally enraged about the recent circular passed by the Central Bank of Nigeria on 5th February 2021.

Dated January 12, 2017, with ref FPR/DIR/GEN/C1R,06/010, the circular warned Deposit Money Banks, Non-Bank Financial Institutions, Other Financial Institutions, and individual citizens against the risk associated with transactions with cryptocurrency.

Here’s an excerpt: “In furtherance to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.”

The above has attracted criticisms not only from stakeholders and players in the industry but sympathizers alike with several calling for the lifting of the outrageous ban.

On Sunday, February 07, 2021, in a statement signed by the Acting Director, Corporate Communications, CBN, Osita Nwanisobi, CBN gave reasons to justify its policy.

It claims that the restriction of cryptocurrencies is to protect Nigerians and the country’s financial system from the illegal nature of such currencies as well as the inherent risks involved in trading them.

The statement reads: “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 a high probability of loss due to the high volatility of the investments in recent times.”

“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.”

Does this statement from the CBN placate crypto users? On the contrary, the outrage expressed by the expanding cryptocurrency user base in Nigeria is certainly getting loud. One of the stakeholders in the space expressed his opinion at CBN’s ill-advised directive.

The Executive Secretary, Stakeholders in Blockchain Technology Association of Nigeria, Obinna Iwuno, had this to say, “Let us not forget that cryptocurrency is one aspect of the blockchain technology, and I say that blockchain is the one opportunity that Africa has to leapfrog and level up with the rest of the world on all it has missed in the past. And cryptocurrency being one aspect of the chain that has caught up with Nigeria, should be harnessed and not destroyed. So the move by the CBN is definitely a wrong one which can lead to the death of an already grown industry.”

Furthermore, “A better alternative should have been for the CBN to engage the players in the industry, to try and understand it better, share their concerns, and design an operative framework that falls within the confines of their jurisdiction.

“We need better cohesion between agencies and institutions of government, and the industry,” he concluded.

I’m inclined to agree that the people in authority have so far demonstrated misplaced priority.

We live in a country where herdsmen go on a killing spree in various states, kidnapping and committing other forms of atrocious activities, yet the government can’t act swiftly enough. Instead, it chooses to tackle cryptocurrencies rather than launch a full-scale onslaught on the marauders defaming Nigeria.

Also, one can’t help but think that this worrisome crypto development is inauspicious, coming on the heels of the NIN-SIM integration directive.

The reality is that Nigerians are already unhappy, not to mention indignant. This capricious policy might leave crypto users no choice, but to find ways to circumvent it.

As with other unpopular directives the government has thrown at Nigerians, the CBN’s restriction on cryptocurrencies has given rise to various theories.

In crypto’s defense, one argument is that the government feels threatened over the use of cryptocurrencies in financing the activities of the #EndSars revolt, equipping the organised protesters with necessities such as food, drink, and transportation among other things.

One attractive benefit of cryptocurrency exchange is the minimal cost of a transaction.

As such, another argument is that with the directive given by the CBN, people will have no choice but go through traditional financial institutions that charge more. Thus, it’s not so much as the “evils” of cryptocurrencies as much as what the CBN, as well as other financial institutions, stand to profit.

Admittedly, trading cryptocurrencies is not only a volatile business, but risky as well. Why this is so is because transactions are irreversible and anonymous unlike what obtains in conventional banking transactions.

Also, there’s no discounting the possibility that users might find themselves doing business with unsavory characters. In addition, we cannot ignore the fact that criminal elements harness the power of technologies for their selfish and amoral end.

Still, rather than throw the baby out with the bathwater, the CBN could’ve taken a cue from the EU’s 5AMLD fact sheet which proposes that member states create central databases comprised of crypto users’ identities and custodian wallet addresses for Financial Intelligence Units to access.

If that doesn’t work, Nigeria, in the manner of other progressive nations, can look into practical ways to regulate and monitor the use of cryptocurrencies. While the Nigerian government claims that it seeks to protect its citizens from crime, fraud, and other harm, it should also create an environment that fosters innovation, technology, and entrepreneurship.

Reacting to the CBN’s stance on cryptocurrencies, Former Deputy Governor of the central bank, Kingsley Moghalu commented, “This is livelihoods for Nigerians, so why would you take actions that look as if you are taking away opportunities from Nigerians especially in a depressed economy.”

He explained that the use of crypto transcended aspects from political to business opportunities for young Nigerians and banning its legal use in banking institutions was a questionable decision.

With the ever-present socio-economic ills such as the high rate of unemployment, inflation, devalued state of naira, afflicting the country, one can only hope that the current ban on crypto will be reversed. Is there a possibility of that happening?

Probably! After all, in 2017, the Securities and Exchange Commission warned investors about trading digital currency, only to recognize the validity of cryptocurrency as investments in September 2020.

Though we don’t know what the future holds for cryptocurrencies in Nigeria, let’s keep our fingers crossed, hoping that the CBN will reconsider its decision.

ICT Clinic by CFA is published weekly in the Sunday Punch