Two prominent Nigerians have kicked against Central Bank of Nigeria’s (CBN)’s order directing non-bank financial institutions (NBFIs), and other financial institutions (OFIs) to close accounts of persons or entities involved in cryptocurrency transactions within their systems.
A former Nigerian Vice-president Atiku Abubakar and a former Nigerian presidential candidate, Kingsley Moghalu have carpeted the decision, proffering solutions on the way out of what they see as ‘ill-timed’ decision.
Allegedly acting on the warning by the United States’ Federal Bureau of Investigation, (FBI), on the activities of fraudsters using cryptocurrencies to bring into the country hundreds of millions of US Dollars illegally obtained from the USA and other Western economies, federal government and CBN slammed the ban on the currencies.
This is as the apex bank had in January 2017 issued a circular banning all transactions involving cryptocurrencies, though the directive was flouted.
Reacting to the news, Atiku said the federal government is restricting inflow of capital into the country by prohibiting the dealing and transaction of cryptocurrencies.
According to him, “This is definitely the wrong time to introduce policies that will restrict the inflow of capital into Nigeria, and I urge that the policy to prohibit the dealing and transaction of cryptocurrencies be revisited,” the former Nigerian Vice-president said in a statement on Saturday.
Former Nigeria’s Vice President noted that the federal government should prioritise job creation and opening of the economy rather than closing it.
The statement read: “The number one challenge facing Nigeria is youth unemployment. In fact, it is not a challenge, it is an emergency. It affects our economy, and is exacerbating insecurity in the nation.
“What Nigeria needs now, perhaps more than ever, are jobs and an opening up of our economy, especially after today’s report by the National Bureau of Statistics indicated that foreign capital inflow into Nigeria is at a four year low, having plummeted from $23.9 billion in 2019, to just $9.68 billion in 2020.
“Already, the nation suffered severe economic losses from the border closure, and the effects of the #COVID19 pandemic.
“This is definitely the wrong time to introduce policies that will restrict the inflow of capital into Nigeria, and I urge that the policy to prohibit the dealing and transaction of cryptocurrencies be revisited.”
“It is possible to regulate the sub sector and prevent any abuse that may be inimical to national security. That may be a better option, than an outright shutdown,” it reads.
“There is already immense economic pressure on our youths. It must be the job of the government, therefore, to reduce that pressure, rather than adding to it.
“We must create jobs in Nigeria. We must expand the economy. We must remove every impediment towards investments. We owe the Nigerian people that much.”
On his part, Moghalu, has said that $500 million worth of Bitcoin has been traded in Nigeria within the last five years.
Moghalu who was once the Head of Directorate of the Central Bank of Nigeria, (a unit which he says is in charge of the financial systems), disclosed these figures while reacting to the recent CBN policy which directed all banks to close accounts that transact in cryptocurrency.
He faulted the move of the apex bank, saying that regardless of the risks involved in trading in cryptocurrencies, he would not recommend that it be banned outrightly.
“A lot of the activities in the world are going digital and I would not recommend banning it (cryptocurrencies) outright,” Mr Moghalu said in an interview on Channels Television’s Sunday Politics.
“$500 million worth of Bitcoin has been traded in Nigeria within the last five years and Nigeria is one of the top 10 countries in the use of cryptocurrencies in the world today”.
He further explained that it is becoming a real factor in the country’s investment ecosystem, as well as a livelihood for many Nigerians.
The Central Bank of Nigeria, Friday, ordered all banks to close accounts of anyone who transacts in cryptocurrency.
In a statement Sunday signed by the Acting Director, Corporate Communications, CBN, Osita Nwanisobi, CBN said: “The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians (including the youth population) 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.
“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.”
The statement also reads: “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.
“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.”
CBN flip flops
In December 2020, the Central Bank ordered switches and processors to stop all domestic currency transfers in respect of foreign remittances through International Money Transfer Operators (IMTOs).
In the same month, Nigeria became the No.2 Bitcoin peer-to-peer market after the U.S with more than $566 million worth of bitcoin traded between 2015 and 2020.
Since crypto is hardly bought with cash from exchanges, this move will affect the operation of companies like BuyCoins, Patricia, Yellow Card among others.