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Why we ban cryptocurrency accounts and transactions in Nigeria ─CBN

*The Central Bank of Nigeria has replied critics of its recent ban on cryptocurrency accounts and transactions in the country, that because of untraceable nature, cryptocurrencies are increasingly being used for money laundering, terrorism financing and other criminal activities

Isola Moses | ConsumerConnect

In restating its stand as the banking sector regulator in the country, the Central Bank of Nigeria (CBN) has said has replied those criticising its ban on cryptocurrency accounts and transactions that the currency is issued by unlicensed entities.

Mr. Osita Nwanisobi, Acting Director of Corporate Communications at the CBN, in a statement Sunday, February 7, 2021, clarified that the CBN Circular of February 5 did not place any new restrictions on cryptocurrencies in Nigeria.

ConsumerConnect reported at the weekend that cross-sections of Nigerians, including former Vice-President Atiku Abubakar, ex-Minister of Education Oby Ezekwesili, and former Reno Omokri, former aide to ex-President (Dr.) Goodluck Jonathan, and several other citizens had criticised the CBN’s immediate prohibition of cryptocurrency trading in the country.

Most of their responses have suggested that the ban may increase “economic pressure” already being experienced by youths.

The CBN in the statement, however, recalled that all the country’s banks had previously been prohibited, by the CBN circular dated January 12, 2017, from not using, holding, exchanging and/or carrying out transactions in cryptocurrencies.

It noted that aside from the fact that cryptocurrencies are issued by unregulated and unlicensed entities, the Bankers’ Bank stated that their use in Nigeria goes against its mandates, as enshrined in the CBN Act (2007) as the issuer of legal tender in the country.

An online dictionary defines a cryptocurrency broadly, as “currency that takes the form of tokens or ‘coins’ and exists on a distributed and decentralised ledger.”

Cryptocurrencies

The CBN specifically said that its latest decision was premised on the fact that cryptocurrencies are largely “speculative, anonymous and untraceable”.

As a result of its untraceable nature, the apex bank said cryptocurrencies are increasingly being used for money laundering, terrorism financing and other criminal activities.

According to the Bank, small retail and unsophisticated investors also face high probability of loss due to the high volatility of the investments in recent times.

In light of these realities and analyses, therefore, the CBN stated that it has no comfort in cryptocurrencies at this time and will continue to do all within its regulatory powers to educate Nigerians to desist from its use and protect the financial system from activities of fraudsters and speculators.

The statement further explained: “As regards our recent policy pronouncement, it is important to clarify that the CBN circular of February 5, 2021, did not place any new restrictions on crypto-currencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in crypto-currencies”

Countries have all made similar pronouncements based on the significant risks that transacting in cryptocurrencies portend risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities, according to the apex bank.

It also noted that China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have all placed certain level of restrictions on financial institutions facilitating cryptocurrency transactions.

In China, for example, the apex bank stated that cryptocurrencies are completely banned and all exchanges closed as well.

While re-emphasising that banks and other financial institutions are not allowed by law to transact or deal in cryptocurrencies, the CBN justified for its recent policy reminder, saying a perfunctory reflection on the definition of cryptocurrencies had already revealed several problems.

It stressed: “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.

“In effect, the use of cryptocurrencies in Nigeria is a direct contravention of existing law.

“It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and cryptocurrencies.

The apex bank noted “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 crypto-currencies for illegal activities.”

The CBN further explained: “In fact, the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet Web site 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 crypto-currencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices.”

The CBN said given that unlike Fiat Money which is accompanied by full faith and comfort of a country or Central Bank, cryptocurrencies do not have any intrinsic value and do not generate returns by themselves.

It restated that “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.”

The apex bank said these developments in the payments and settlements space has helped to grow the financial system, improving financial inclusion.

It noted that the quality and convenience of financial services has also created millions of direct and indirect jobs for teeming youth population.

According to the Bank, the innovations in Nigeria’s payment system were catalysed by regulatory reforms driven by the CBN which entailed the issuance of a raft of guidelines and regulations on Operations of Electronic Payments Channels in Nigeria; and Transaction Switching; Card Issuance and Usage, Licensing of payment service providers.

Others are Mobile Money Services, Electronic Payments of Salaries, Pensions, Suppliers and Taxes, Licensing Super Agents in Nigeria; and use of USSD for Financial Services in Nigeria, Super Agents and Agent Banking Operations and Payment Service Banks.

It said several other initiatives are being implemented to further support FinTech development and creation of jobs.

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