When the Central Bank of Nigeria directed banks in the country to close all Crypto currency-related accounts, many Nigerians expressed their anger in a rush. The regulator prohibited all financial institutions from facilitating cryptocurrency payments in the country. This directive was contained in a letter addressed to all Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs), and other financial institutions (OFIs) in Nigeria. The letter was signed by Bello Hassan, Director of banking supervision. Nigeria is reportedly the second-largest Bitcoin market in the world, second only to the United States.
There was an uproar immediately, Nigerian crypto users tweeted the hashtag #WeWantOurCryptoBack over 26,000 times. Thousands of Nigerians called the move a retrogressive action. The protesters took to other social media platforms to slam the Federal Government.
In a swift reaction, the Presidential Candidate of the People’s Democratic Party, (PDP) and former Vice President of Nigeria, Atiku Abubakar released a statement. He said the Federal Government and CBN should not shut down the Cryptocurrency business.
Atiku in a statement asked the Federal Government to regulate the sector instead of an outright shutdown. The statement referenced the declining inflow of foreign capital into Nigeria from $23.9b in 2019 to $9.68b in 2020 and said the economy needs an expansion rather than a contraction.
The Former Vice President said, “We need to open up our economy, not close it.’’ He explained that ‘‘the number one challenge facing Nigeria is youth unemployment. 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 a 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 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. 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. “
However, Nigeria-based software, Tosin Olugbenga said the CBN may have issued the directive because of the Bitcoin price run of 2020 and growing interest in Cryptocurrencies worldwide which is causing Nigerians to convert their earnings to crypto.
“They’re moving money from naira to crypto. That is what the CBN sees and has taken issue with. It is not banning crypto trading. It’s just telling financial institutions not to allow their platforms to be used to buy or sell crypto on exchange platform like Binance,” Olugbenga added that most crypto transactions in Nigeria happen on peer-to-peer exchanges, so once the panic dies down trading will continue as usual. The CBN cannot stop cryptocurrency trading. It will continue on the internet’’
A few days later, the CBN explains the reasons behind the ban on Bitcoin. CBN Chairman, Godwin Emefiele said, cryptocurrencies are a financial medium for fraudsters, terrorists, money launders and criminals – especially given their involvement in ransomware scams, and trading on the Dark Web.
However, not many people agreed with the Governor. In a chat with Femi Akande, a Bitcoin enthusiast, he said, ‘‘ There is no financial system without risks. There are financial risks even in the traditional system, with all the regulations, scammers use traditional financial systems all the time. I think what the CBN should have done is to set up regulatory instruments to protect honest Nigerians cryptocurrency traders.
The recent upsurges in the value of Bitcoin have also established cryptocurrency as a viable investment which – with the positive hype surrounding the blockchain technology that backs it up – can have a positive impact on the wallets and trading practices of mainstream investors, worldwide.
These are some advantages of cryptocurrency transactions, the fact that they are one-to-one affairs, taking place on a peer-to-peer networking structure that makes “cutting out the middle man” a standard practice. This leads to greater clarity in establishing audit trails, less confusion over who should pay what to whom, and greater accountability, in that the two parties involved in a transaction each know who they are.
Lagos Lawyer, Ahmed Bakare said, the Central Bank must have acted in the best interest of the nation, having considered the pros and cons. ‘ I don’t think the Central Bank will make that kind of decision without considering the benefits of Crypto trading to Nigerians or the Nigerian economy. Having said that, Nigeria is a big player in that sub-sector and the matter cannot die with the Central Bank wielding its sledgehammer. I want to believe there is a future for Nigeria in Cryptocurrency trading and investments.’’ He said.
Mike Fowope, MD Hantec Limited said, “There’s no stopping crypto, it’s the future and we won’t let some people take our future from us. Using the crypto is a way out of poverty for the Nigerian youth. The shutting down of bank accounts will not be enough to shut down Nigeria’s cryptocurrency market unless they stop the internet’’ he said.
CBN’s clarification that this is not a new order, but a reminder of a directive published in 2017 as not helped matters. it’s having an impact. In response, banks quickly cut ties with cryptocurrency companies, such as the Binance exchange and social payments app Bundle, which in turn stopped accepting deposits.
The reason why Nigeria has become a hot spot for cryptocurrency as an alternative to the naira is that the national currency is too prone to depreciation. Nigerians have found various uses for decentralized digital currencies, from trading bitcoin (BTC, -3.49%) to make a living to using it to dodge trade restrictions with China.
Reports say, during the Endsars protests against police corruption, a Feminist Coalition, a non-profit entity, was accepting donations for the protests. When the group’s bank accounts were frozen and it couldn’t accept funds, it switched to bitcoin donations because the payment method could not be frozen.
Nigerian News Abroad investigations reveal that cryptocurrency users aren’t happy about CBN directive at all and have said they will continue to use cryptocurrencies through methods that are harder to detect and stop.
Nigerian Bitcoin Core contributor Tim Akinbo on Twitter, said, “Bitcoin is peer-to-peer, meaning that it can be transacted without intermediaries. Your bank may be able to shut down your account but no one can shut down your bitcoin wallet. This development, will not be the end of bitcoin in Nigeria,”
Several sources in Nigeria say they plan to continue trading bitcoin via peer-to-peer exchanges, and more aired similar conclusions on social media.
Developer and cryptocurrency educator Chimezie Chuta said, “Most people will return to peer-to-peer transactions, some will leverage several alternatives that connect crypto to financial systems, like reloadable Visa or Mastercard. Most will simply use crypto as a choice reserve asset. A lot of activities will just go underground,” he said.
The CBN order for banks to close accounts associated with cryptocurrency is supposed to curb criminal activity and risky investments. In its clarification, it also listed several reasons why it considers cryptocurrencies dangerous and noted that other central banks and international financial institutions have warned against their use. However, Cryptocurrency usage is big and legal in the United States.
CBN said, “There are risks of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities.”
Another Bitcoin trader said, “The fact that the CBN sent out this controversial memo to banks and other financial institutions without giving the industry participants and stakeholders an opportunity of dialogue shows how little they know about the Nigeria cryptocurrency ecosystem,”
He argued that Nigerians should have a choice over what assets they invest in, especially because the value of the naira depreciates over time and users might want to use bitcoin as a hedge against this continuous inflation. He said many Nigerians are using crypto trading to put themselves through school, thousands of new businesses and jobs are being created by crypto innovation.
“This directive was ill-advised, archaic, retrogressive, insensitive, and a primitive superstition,” he added.