Banned Cryptocurrencies Transactions: The Argument, Impact

February 17, 2021
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By BUKOLA IDOWU and DUSTAN AGHEDO,

Last week, the apex bank took a harsher stand by mandating banks to proscribe accounts of cryptocurrency traders. BUKOLA IDOWU and DUSTAN AGHEDO examines the move and its overall impact on the nation’s economy.

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The past week has been abuzz on social media with the Central Bank of Nigeria (CBN) in the middle of it with it directive to regulated financial institutions on February 5, 2022, to identify people and organisations trading in crypto and close their ac-counts immediately. It also threatened severe regulatory actions on financial institutions that refuse to co-operate.

The ban came as a shock to many, including those in the crypto industry who said there was no communication beforehand. While many expected some kind of regulation in the future, the suddenness and seeming totality of it has deeply shaken the industry as many believe that move will not only be counterproductive but also an attempt to cut off the oxygen going to crypto platforms.

The Apex bank had in its defense explained that the recent regulatory directive became necessary “to protect the financial system and the generality of Nigerians 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, terrorism financing and other criminal activities. Small retail and unsophisticated investors also face high probability of loss due to the high volatility of the in-vestments in recent times.”

CBN CIRCULAR ON CRYPTOCURRENCIES TRADING

Back in 2017 when the CBN issued its circular on cryptocurrency, the Securities and Exchange Commission (SEC) had advised Nigerians against digital currencies. This was in line with what most advanced countries were doing at the time as many central banks were wary of giving full acceptance to cryptocurrencies.

Specifically, the CBN did not, in its January 12, 2017 circular, ban cryptocurrency trading. The directive in the 2017 circular referenced FPR/DIR/GEN/CIR/06/010 was that banks and other financial institutions in the country “ensure that you do not use, hold, trade and/or transact in anyway in virtual currencies.

“Ensure that existing customers that are virtual currency exchangers have effective AML/CFT controls that enable them to comply with customer identification, verification and transaction monitoring requirements.

“Where banks or other financial institutions are not satisfied with the controls put in place by the virtual currency exchangers/customers, the relationship should be discontinued immediately and any suspicious transaction by these customers should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU).”

The CBN reiterated that VCs (virtal currencies) such as Bitcoin, Monero, Litecoin, Dodgecoin, Onecoin, among others, and similar products are not legal tenders in Nigeria, thus, any bank or institution that transacts in such business does so at its own risk.

This position of the CBN in 2017 indicates that while it does not endorse trading in cryptocurrencies, it did not out rightly ban it but recognises its presence in the country and urges individuals to take caution whilst trading in it.

SEC CIRCULAR ON CRYPTOCURRENCIES TRADING

SEC, on its own part, had advised Nigerians to exercise extreme caution with regard to digital (crypto currencies) as a vehicle of investments. Specifically in 2017, it said: “the commission, wishes to alert the public that none of the persons, companies or entities promoting cryptocurrencies has been recognised or authorised by it or by other regulatory agencies in Nigeria to receive deposits from the public or to provide any investment or other financial services in or from Nigeria.

“The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be of a risky nature with a high risk of loss of money, whilst others may be outright fraudulent pyramid schemes.”

To further understand the digital currency market, the Securities and Exchange Commission (SEC), the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) had come together to form a committee to look into adopting regulations for digital currency in the country.

Last year, there were indications that there might be regulations for the crypto market before the end of the year, and truly in September last year, SEC came out with its stance which categorised cryptocurrencies as virtual digital assets.

In a statement issued in September last year, SEC said it will regulate crypto-token or crypto-coin investments when the character of the in-vestments qualifies as securities transactions. It noted that crypto asset such as non-fiat virtual currency would be “treated as commodities if traded on a Recognised Investment Exchange and/or issued as an investment, and is subject to Part E of SEC Rules and Regulations and any other relevant sections and subsequent Rules which will be enacted in future.”

However, on Friday February 12, 2021, SEC issued a statement to clarify that its earlier circular is not at conflict with the stance of the CBN.

TRADERS FUME

Speaking to LEADERSHIP, a cryptocurrency trader, who simply wanted to be identified as Henry, noted that the CBN circular has exposed the youths further to the high rate of unemployment in the country and making the traders vulnerable to scammers.

He said: “Buying and selling crypto isn’t as convenient as it used to, there used to be myriad of options when funding and buying from exchangers using your local bank account, now we are limited to only P2P (Peer to Peer ) which has a possibility of you losing your money to scammers if not careful. Back then, we could easily sell and withdraw money into our bank accounts within minutes, now we have to go through a longer alternative which I wouldn’t like to make public because of incompetency on the part of the government.”

He said that despite the new reality, funds have been safe. “Although options of funding your wallet have been removed by exchangers, that of withdrawal is still available for traders to safely withdraw their money into their accounts but we don’t know how long this option will be available considering the CBN circular,” he stressed.

Another bitcoin trader, Temitope Bello, said, while he isn’t fully committed to the trading, the move by CBN will no doubt have a massive implications on Nigerians especially the teeming youths who see crypto as a financial opportunity to break even especially in the face of unemployment in the country. He noted that it has provided a means of livelihood for most youths.

He said, with this ban, his investment still appears to be safe, but the plan however is to use p2p (peer to peer), which is basically, buying or selling to people directly.

Bello bemoaned that such ban by CBN is perceived as a means to stifle Nigerian youths and make their already hard lives harder.

EXPERTS’ REACTIONS

Former presidential aspirant and deputy governor of CBN, Kingsley Moghalu, in his opinion, said the directive from the apex bank was not the best approach. According to him, the clarity should be made that it is a ban on financial institutions not to engage in cryptocurrencies, not on trading activities.

“It is mainly targeted at cryptocurrency exchanges. Hence, it does not criminalise individuals trading in cryptocurrencies. Individuals would likely have difficulties in making transactions since the activities of the exchanges are limited.

“The CBN has said it is not a legal tender but they don’t have to tell you or me what we can exchange for value. If I want to give you my shirt and you give me your shoe the Central Bank has no business with it,” he said.

Moghalu noted that aside from facilitating $500 million in transactions in the last five years, the cryptocurrency market employs hundreds of Nigerians and have also created new value chains that are bound to be impacted by the CBN decision. Investors in the blockchain, as well as other industries, he said, would also not be heading Nigeria’s way for as long as the CBN prohibition holds.

For Moghalu, the increasing adoption of cryptocurrencies in Nigeria and the instability that it brings to the economy should have been enough for the CBN to explore a different approach. The Nigerian economy, he stressed, is still in recession and the foreign exchange continues to be limited for manufacturers and other businesses that need it for daily operations, noting that, the world is going digital, hence, there is a lot of innovation and cryptocurrencies are part of that.

To Daniel Eze, a project manager, “for me, what is saddening is that they do not see the need to explain beforehand and secondly, pull in the stakeholders to find a workable middle ground before throwing out the baby with the bathwater.”

Chief executive of Binance-backed payments app, Bundle, Yele Bademosi, took to Twitter with a one sentence protest saying #Nigerianeedscrypto

Crypto trading platform, Luno, which had been in operation for years in the country issued a statement on its website stating that it is aware of the circular issued by the Central Bank of Nigeria advising financial institutions in the country to close bank accounts held by cryptocurrency service providers.

“Luno will continue to operate as normal while we seek further clarity from the authorities. Some Naira deposit methods are currently affected, please check the status page for updates. Withdrawals are unaffected and will continue to be processed, but may take longer than usual. All customer funds are completely safe.

“There is no need to take any action regarding your account at this time. We will update our customers on all incoming developments as soon as we receive further information, and certainly well in advance should withdrawals be affected.

“Luno has always worked closely with regulators in Africa and all regions in which we operate, and will continue to do so. Nigeria’s regulators have taken a pragmatic and forward-looking approach to cryptocurrency in the past and we’re confident that this issue can be resolved quickly, so Nigeria can continue to play a central role in the growth of cryptocurrency,” it pointed out.

In its immediate response to the CBN circular, Binance, through its official Twitter handle @cz_binance said: “received a notice from our channel partners that NGN deposits and withdrawals will be affected. Still confirming details of when and how. Please withdraw your NGN as early as possible to avoid potential channel issues.

Many have, however, found other ways to continue to hold and trade cryptocurrencies as a crypto holder explained that Peer to Peer is a way through which individuals will continue in their trade, whilst their plat-forms seek a resolution of the issue with CBN.

Also, Binance added naira Fiat/naira pair to its Peer to Peer (P2P) trading platform in Nigeria allowing users to buy and sell their naira Fiat balance on Binance with zero transaction fees for Nigerian Naira using Bank Transfer and other payment methods.

A financial expert, Umoren Etuk said, “although it remains to be seen whether the ban on crypto transactions will be enforced, there is palpable tension in the air. If implemented, it will prevent Nigerians from being able to fund and with-draw from their accounts in crypto exchanges.

“While it does not criminalise ownership of crypto, the new circular makes owning and trading it more difficult for everyday people.

“At a time when many countries are exploring ways to make cryptocurrencies mainstream, Nigeria’s central bank has effectively taken the country back by more than a few steps.”

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