The Central Bank of Nigeria (CBN) recently reiterated its earlier ban on all licensed financial institutions in the country from participating in any transaction involving cryptocurrencies – a term referring to a cluster of digital currencies that operate in the virtual world, hence do not exist in the tangible form.
In a circular dated February 5, 2021, and signed jointly by Bello Hassan, Director of Banking Supervision and Musa Jimoh, Director of Payment Systems Management Department, the apex bank referred the financial institutions to its “earlier regulatory directives” on the prohibition of their involvement in cryptocurrency transactions. The circular further directed the affected institutions to proceed forthwith and close all accounts held by customers that are associated with cryptocurrency transactions.
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The designated licensed financial institutions include all banks, finance houses and all other CBN licensed agencies operating customer accounts, while the implicated cryptocurrencies include Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Etherum, Perfectmoney as well as the NairaEx, the trending exchange where the Naira is traded for the cryptocurrencies. The recent circular itself referred to an earlier one on the same subject dated January 12, 2017.
Expectedly, the latest action by the apex bank has attracted a wave of reactions from several stakeholders in cryptocurrency transactions as well as other members of the public – the latter out of interest in the mystique associated with the cryptocurrency matter, given that it does not exist in a physical form.
In the same vein did the Senate summon the Governor of CBN, Godwin Emefiele and the Director-General of the Securities and Exchanges Commission (SEC) Lamido Yuguda, to appear before it to clarify issues. The CBN on its own had responded to the deluge of queries by clarifying that it only intended to protect the public interest with the ban as the wide range of cryptocurrencies are neither legal tender, nor are they traded on regulated platforms. This condition implies that unwary customers run the risk of losing their money to fraudsters.
Given that cryptocurrencies exist in the virtual world, transactions in them are typically outside the statutory control of any government, hence predisposing them as prime avenues for fraudulent activities since offenders cannot be sanctioned. This systemic issue with cryptocurrencies has been cited by not a few countries around the world to deny their financial institutions the liberty to allow transactions in these monies. This vindicates the CBN as acting in concert with other concerned interests in respect of caging any untoward developments from this new dispensation.
Countries that have declined to authorize their financial institutions to accommodate cryptocurrencies include China and Russia while a nation like the US has adopted a more liberal disposition towards it, citing the enhanced flexibility which it offers business transactions in facilitating the purchase of goods and services, especially with online stores, as it is akin to barter trading.
With respect to the Nigerian environment, the country’s experience with endemic instances of scam and related twists in the financial sector have made the need for caution exigent. Now and then, the citizens are exposed to sundry manipulations of even routine, legitimate financial operations, with the banks not spared despite the supposedly high level of regulation. In every instance of innovation in financial services, not a few Nigerians will fall victim to unscrupulous elements in society who would exploit the system to perpetrate fraud. At the last count, billions of dollars have been lost to manipulated cryptocurrency transactions by unwary investors.
In another perspective, it is also an abdication of responsibility by the CBN which has failed to provide due responses to the cryptocurrency challenge since its advent in 2009. Granted that the CBN banned its licensed financial institutions since 2017 from accommodating customers transacting in cryptocurrency, its latest circular on the same issue betrays its banking supervisory mechanism as weak.
The foregoing notwithstanding, the apex bank should now proceed to guide the country aright with respect to the operations of the cryptocurrencies now that they are likely here to stay.