Crypto and blockchain stakeholders in Nigeria have criticized the central bank’s decision to ban banks from serving crypto companies.
The Central Bank of Nigeria banned banks from serving crypto exchanges in the country, in a move reflecting the actions of its Indian counterpart in 2018. Reactions to the news among the political class were divided between ethnic and geopolitical lines.
In November 2020, Nigeria’s gross domestic product fell for a second consecutive quarter, dragging the country’s economy into another recession.
According to the Nigerian Bureau of Statistics, 26 of the 36 Nigerian states did not receive any foreign investment in 2020.
Even before the coronavirus outbreak began, Nigeria’s economy had been devastated by the perceived mismanagement and incompetence of the current administration. However, the country’s cryptocurrency economy was developing over the same period.
Nigeria has become a hub for crypto adoption, and Google Trends data ranks the country as number 1 in the world in terms of search interest for Bitcoin (BTC). Nigerians struggling with access to Forex are turning to cryptocurrencies as the second best thing to protect their wealth against the rapidly falling naira.
CBN is not a fan of Bitcoin
In early February, CBN issued a circular directing all financial institutions to stop serving crypto exchanges. The notification also instructed banks to close the accounts of any person or organization found to be engaged in cryptocurrency trading activities.
Defending its position, the central bank of Nigeria has resorted to the usual debates such as volatiltie, money laundering, terrorist financing, the Silk Road and “rat poison”, among others. CBN highlighted the steps taken by several people such as Bangladesh, Ecuador, Egypt and Nepal as the justification for its ban. CBN said in a statement clarifying its position:
“The latest regulatory directive has become necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto asset transactions.”
In the midst of the turmoil created by the ban, the central bank announced that the announcement was not a new decision, but rather a re-release of its position before 2017. But that 2017 statement warned banks against only holding or trading crypto; There was no mention of any ban on financial institutions providing account services to cryptocurrency exchanges.
The main actors on the BDC scene emerged in support, calling the movement a step in the right direction in terms of Anti-Money Laundering efforts. Meanwhile, crypto trading on exchanges in Nigeria depended on strict Know Your Customer protocols, which included verification steps, including all important bank verification numbers.
The use of crypto was gaining even more ground in Nigeria, with CBN blocking foreign currency transfers in naira. Tech-savvy Nigerians who are dissatisfied with the services and exorbitant rates of BDC operators can access forex through cryptocurrencies, particularly price-pegged stablecoins.
There are also rumors that CBN’s action is part of the government’s ongoing pressure against the October 2020 “EndSARS” protests. EndSAR is the rogue police unit involved in numerous extortion and extrajudicial executions. When banks closed the accounts of individuals and organizations that supported the protests, many people switched to cryptocurrencies as a way to circumvent financial censorship.
According to CBN, the government has received complaints from the United States Federal Bureau of Investigation about the activities of scammers using crypto. Indeed, in July 2020, he reported an FBI complaint allegedly using cryptocurrency for laundering millions of dollars by Nigerian fraudsters.
CBN went even further to exaggerate criminal organizations’ use of crypto: “Many banks and investors who value high reputation have been removed from cryptocurrencies due to the harmful effects of the widespread use of cryptocurrencies for illegal activities.”
While there are examples of criminal uses of cryptocurrencies, the volumes of such activities are insignificant when compared to the overall global crypto transaction matrix. Blockchain intelligence firm Chainalysis revealed in its 2020 crypto crime report that only 0.34% of cryptocurrency transactions in 2020 were involved in illegal activities.
The report also noted a decline in crypto crime, with legal cryptocurrency trading nearly tripling in volume between 2019 and 2020.
“For a long time, cryptocurrency has been associated with bad activity, but in reality the fiat currency is 10 times more criminally used than crypto. […] Banning access to crypto will affect a country more negatively than criminal activity that the industry has mistakenly associated with. ”
Nigeria’s oldest Bitcoin exchange pl
David Ajala, CEO of NairaEx, one of the formats, said that CBN is mistaken in defining crypto as a tool for criminal activities.
“The regulatory agency’s task is to try to find ways to block illegal activities on the blockchain, just as processes and framework are used to block illegal activities using fiat.”
Crypto resolves skyrocketing unemployment in Nigeria
Still in its early days, the CBN ban seems to have done little to change Nigeria’s established culture. However, as banks are reported to close accounts linked to crypto trading, users in the country are embracing even more peer-to-peer channels. According to Ajala, the economic benefits associated with crypto participation far outweigh any inconvenience caused by the CBN ban.
“Cryptocurrencies have served as an economic boost for millions of Nigerians using trade as a source of income, and have become a measure against the 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 in the last five years, and this has been exacerbated by the COVID-19 outbreak. Ajala added:
“Exchanges, educators, digital asset management firms, etc. in the blockchain industry in Nigeria. There are a minimum of 100 startups operating. All of them employed thousands of Nigerians. ”
For Oyekan, Nigeria will greatly benefit from policies aimed at supporting the thriving cryptocurrency market.
“Nigeria ranks eighth in the global adoption of cryptocurrency and number one in peer-to-peer payments, moving $ 139 million last year. In emerging markets where local currencies are highly volatile, gaining access to a financial system as provided by crypto and blockchain technology does more than bad. It empowers the unbanked, helps create wealth and creates financial stability. ”
Oyekan believes that the central bank should consider nuance regulations rather than strict bans. According to him, CBN should create a licensing regime for crypto companies while considering keeping Bitcoin on its balance sheet.
Meanwhile, Nigeria’s Securities and Exchange Commission halted the planned regulatory sandbox for crypto businesses following the CBN ban. According to the SEC, the decision was made because qualified businesses under the sandbox framework are currently prohibited from keeping bank accounts in the country.
The finance ministry previously collaborated with the SEC to create a legal framework for crypto and blockchain in Nigeria. At the time, this move was seen as an important step towards stimulating the country’s growing digital economy.