The social media space has been abuzz after the Central Bank of Nigeria (CBN) issued a circular last Friday, reminding commercial banks and other financial institutions on the prohibition of facilitating payment for crypto-currency transactions.
According to the circular, CBN referred to the previous warning of January 12, 2017.
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“Accordingly, all DMBs, NBFIs and OFIs are directed to identify persons and/or entities transacting in or operating crypto currency exchanges within their systems and ensure that such accounts are closed immediately.”
“Please note that breaches of this directive will attract severe regulatory sanctions. This letter is with immediate effect.”
Daily Trust learnt from industry sources that the latest move was coming shortly after a cyber-criminal cartel hijacked the data of one of the banks and demanded ransom in bit coins.
In the circular
Although a financial regulatory official argued that CBN was not against the use of crypto currencies and had not banned any individual from using it, the official said CBN was doing its job to check unregulated actors from using the platforms of institutions it regulates for illegal transactions.
“No central bank in the world would seat back and not address threats to the financial system it regulates.”
Virtual currency trading is not just new globally. In 2009, and against the backdrop of the financial crisis of 2007-2008, an anonymous person or group called ‘Satoshi Nakamura’ created the first decentralised virtual currency, or crypto-currency, the Bitcoin.
Much more revolutionary than the Bitcoin is the technology behind it called Blockchain. The idea of a network of users that validates transactions through its user collective instead of a middle man (a bank) was ground-breaking.
Transactions can take place much quicker, easier and cheaper. The technology is not limited to virtual currencies but can work for almost every type of transaction between parties.
A cross section of Nigerians have apparently showed support for the digital currency operations and kicked against its muzzling by the apex bank.
A former vice president, Atiku Abubakar, in a statement said the plan to prohibit crypto currency transactions will restrict the inflow of capital into Nigeria.
“The number one challenge facing Nigeria is youth unemployment. In fact, it is not a challenge, it is an emergency. It affects our economy and is exacerbating insecurity in the nation,” Atiku said.
He however called for the regulation of the industry, not prohibition, citing that “there is already immense economic pressure on our youths.
“This is definitely 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 crypto currencies be revisited.
“It is possible to regulate the sub-sector and prevent any abuse that may be damaging to national security. That may be a better option, than an outright shutdown,” he urged.
Senator Ben Murray-Bruce also reacted via his Twitter account. “CBN should better not be in a hurry to make such hasty decisions.”
A lawyer and an associate within the Corporate Finance and Capital Markets Department of SPA Ajibade & Co., Olayanju Phillips, said CBN was acting within the Banks and other Financial Institutions Act.
He however said the CBN directive contradicts those of the Securities and Exchange Commission (SEC) and the National Information Technology Development Agency (NITDA).
He recalled that SEC had recently on its website said crypto-assets (such as crypto currencies) as securities, which may be offered to the public. However, with the CBN ban, it is technically illegal to purchase these securities
NITDA is also promoting the safe use of crypto-currencies and block chain technologies, he noted.
“Alternatively, the CBN may have developed a regulatory sandbox specifically for crypto currency innovations. This would have afforded the CBN a better opportunity to understand the risks and more so, the opportunities for the country to explore the industry,” said Philips.
Operators halt Naira deals
Following the latest CBN directive, Daily Trust gathered that some operators of crypto currencies have halted Naira transactions while others are finding a way around it.
Luno, a crypto currency company, which currently has over 4 million customers said it is pausing Naira deposits while seeking further clarity from the authorities.
Its operators in a statement said, “There’s 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.’
Binance, another crypto currency exchange has suspended Nigerian Naira deposit.
“However, our NGN payment partners are suspending deposit services until further notice from 7pm on February 5, 2021,” a statement said.
One of the traders who found a way around it said, “The CBN directive doesn’t stop anything. We can still withdraw and still buy; the only thing is your narration won’t quote crypto currency. Also, you may not be able to transact using a crypto account but through a debit card.”
He also said the body of operators do not have legal standing to challenge the CBN decision since “crypto is not regulated in Nigeria. But the CBN decision is unfortunate.”
“The Indian government established two banks on crypto currency. One was commissioned last month.”
Experts back CBN, warn of risks
As the heat continues, some experts in the financial industry have supported the CBN precautionary directive.
Sara Omalicha, a business woman, said: “Many bitcoin apps and sites now allow transferring cash from your bank accounts straight to your bitcoin wallet which is illegal. It’s illegal because bitcoin is not a legal tender and so, not a recognized currency to buy and sell in Nigeria.
“The CBN is only asking banks to disable that connection of transferring money from your account to your bitcoin wallet. You can still buy and sell bitcoin, but you won’t be able to just transfer straight from your bank to your wallet anymore like it used to be.”
A financial analyst, Yakub Aliyu, explained that the CBN Act recognises the Naira as the only legal tender in the Nigerian financial system, adding that the apex bank never prevented any individual from dealing in crypto currency.
“CBN is also concerned that bitcoin valuation is excessively speculative, akin to betting, and it will not make sense to run a currency system based on gambling.”
Some countries are also taking similar actions including Turkey, he noted.
Prof. Uche Uwaleke, a professor of Finance and Capital Market, said “given the weighty nature of the directive, I want to believe that the CBN must have consulted relevant stakeholders including the Bankers Committee before taking the decision. I am inclined to believe that it was well thought through and not a unilateral decision.”
He however stated that CBN should have explained some of the risks.
“It should have done so especially if it’s to do with fraudulent activities and threats to financial system stability. I recall that not too long ago, at some point, China, widely seen as the home of crypto currencies, had to ban trading in bitcoins.”
From Sunday Michael Ogwu, Christiana T. Alabi (Lagos) & Chris Agabi (Abuja)