On Friday, 5th February, 2021, the CBN pronounced the ban on cryptocurrency operation in any form in the Nigeria’s financial system as illegal, and banned it. It could be recalled that the CBN had on two occasions in 2017 and 2018 warned that transacting in cryptocurrency in the country is illegal. However, the latest seal by the Bank has attracted mixed reactions from several quarters, the political, academia, financial technocrats and the uninformed.
What is Cryptocurrency, otherwise called the 21st-century unicorn, the money of the future or freedom money? Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
Its most important feature is that, it is not controlled by any central authority or regulator . Its decentralized nature as a blockchain immunes it from traditional ways of government control and interference. Cryptocurrencies can be transacted directly between two parties through the use of private and public keys with minimal processing fees, thus allowing users to avoid the steep fees charged by a central bank. This implies it cannot be regarded as a legal tender.
What is a legal tender? A legal tender is a coin or banknote that must be accepted if offered in payment of a debt or transaction. Legal tender is something which is acknowledged by the laws as a mechanism to settle a private or public debt or in order to meet a fiscal responsibility which includes paying taxes, abiding by contracts, and finally damages or fines. Almost every country uses its national currency as legal tender.
Can the CBN action on crypto be described as irrational, or failing to swim with the tides of time? Why is the business of crypto shrouded in secrecy if it is to serve as a means of transaction acceptable by all, and sundry? Satoshi Nakamoto, was the inventor of Bitcoin, the first and still most important cryptocurrency. He never intended to invent a currency. He said in 2008 he only developed “a peer-to-peer electronic cash system.”
He only invented what many people failed to create before digital cash, purposely to prevent double spending devoid of a central authority or server, building a decentralized digital cash system. Cryptocurrency today, has no doubt become a global phenomenon known to most people, yet illegal.
The Central Bank of Nigeria (CBN) while clarifying why it directed Deposit Money Banks (DMBs) and other financial institutions to desist from transacting in / and with entities dealing in cryptocurrencies, said it was due to the fact that cryptocurrencies are largely speculative, anonymous and untraceable. Cryptocurrencies have increasingly become money laundering tools, terrorism financing and other criminal activities.
The CBN said, the regulatory directive became necessary to protect the financial system and the generality of Nigerians (including the youth population) 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. It added that the small retail and unsophisticated investors also face high probability of loss due to the high volatility of the investments in recent times.
The Bank’s Ag. Director, Corporate Communications Department, CBN, Osita Nwanisobi in a statement said, “in light of these realities and analyses, the CBN 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 our financial system from activities of fraudsters and speculators.”
According to the statement, most of the comments and reactions that have trailed the action revealed that there appears to be a need to provide further justifications about its position, especially to the general public.
It said, for those who are not conversant with the universe of cryptocurrencies, it is important to state that Cryptocurrencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography, a method of encrypting and hiding codes that prevent oversight, accountability, and regulation.
Currently, there are about 10 cryptocurrencies in circulation. Bitcoin was the first to be introduced in 2009, which accounts for about 68 percent of all cryptocurrencies. Others are Litecoin, Ethereum, Ripple, Dash, NEM, Monero, Ethereum Classic, Augur and Waves.
It must be noted in the Bank’s statement that, it did not place any new restrictions on cryptocurrencies, 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 cryptocurrencies. Indeed, this position was reiterated in another CBN press release dated February 27, 2018. Why now the hue and cry of its latest action?
The CBN’s position on cryptocurrencies is not alien as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use. Though, countries like Australia, Canada, United States of America and European Union acknowledged its operations, they, however, never accepted them as substitute for legal tender. They are only acknowledged as mere business incomes, and have banned their usage as either debit or credit cards for transactions.
Countries like China, Russia, Vietnam, 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 as they are not accepted as legitimate payment channel. These countries cannot be said to be insensitive to the danger cryptocurrencies portend in view of widespread global insecurity and terrorism.
Nigeria today, is faced with security challenges, and globally, we are all aware of monies not within the financial system being used to fund terrorism. We witnessed this during recent #END SARS# protest. Some of the cases are under investigation, while some are being prosecuted.
It irks when people who should know throw decency to the dogs for obvious dislike for people in authority for mere political dirtiness, thus, standing the truth on its head. There is the sacred fact enshrined in the CBN Act 2007 as the financial regulator not to allow unlicensed entities to operate in the country’s financial space. Are we witnessing a resurgence of MMM in Cryptocurrencies?
During the time of MMM, the pronouncement and ban of its operation by the CBN was visited with this same acerbic reaction. Gladly, the CBN had the last, and best laugh when the bubble busted. How then would one situate the Securities and Exchange Commission’s stance in this controversy going by its position on cryptocurrencies.
Is it within its mandate to regulate what it has no power? It wrote in September 2020 that “Digital assets offerings provide alternative investment opportunities for the investing public; it is therefore essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency.
The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market”. This is the crux of the current controversy when government agencies go overboard making pronouncements on issues, they have no competence or constitutional power, thus throwing the system into confusion.
It affirmatively asserted that Section 13 of the Investment and Securities Act, 2007 conferred powers on the Commission as the apex regulator of the Nigerian capital market to regulate investments and securities business in Nigeria. In line with these powers, the SEC has adopted a three-pronged objective to regulate innovation, hinged on safety, market deepening and providing solution to problems. This will guide its strategy, its regulations and its interaction with innovators seeking legitimacy and relevance.
Consequently, the SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions”. Even if its Act confers the right on it, can’t the Exchange engage the CBN on the issue before going public when it was aware that the CBN, as the financial regulator had made a pronouncement back in 2017 prohibiting transacting in Crypto and find a way around the issue so as not to hurt the fragile economy?
Why are government agencies not always stay within their constitutional confines? In view of reasons canvassed by the CBN, that, repeated and recent evidence suggests that some cryptocurrencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices. It is also why the very name, and nature of “cryptocurrencies” suggests that its patrons and users value anonymity, obscurity, and concealment.
The question is, why would any entity disguise its transactions if they were legal? It thus suggests that, Crypto is well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion, as evident in today’s Nigeria.
It is also shocking reading a former Vice President of the country, Atiku Abubakar, carrying his political frustration too far into a terrain he has no competence when he called for the policy reversal. Quoting him in his tweet, “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 cryptocurrencies 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. We must create jobs in Nigeria. We must expand the economy. We must remove every impediment towards investments. We owe the Nigerian people that much.” I ask, allowing illegal inflow of illicit investment into the country? This is shocking coming from a leader, playing politics with fortunes of Nigeria.
Equally disturbing was the comment of a former Deputy Governor of the Bank, Kingsley Moghalu, who should know better but seems not to have gotten over his political misadventure, castigating the policy action.
He said on a television programme on Sunday, February 7, 2021, that if he was still at the CBN he would have handled it differently, having superintended over the Financial System Stability Directorate of the Bank.
Paradoxically, he admitted that cryptocurrency poses a threat to financial stability.
Quoting him, “When I saw news of this directive, I was a bit concerned but I was not surprised. I was not surprised because you have to first of all understand that there are many dimensions to the question of cryptocurrencies. “There are financial stability issues and concerns. There is the question of whether or not, it is a legal tender in Nigeria, this is because the central bank put out that regulation in 2017.
“And now they have put out a new directive basically banning all deposit money banks from transacting in cryptocurrencies. But the Securities and Exchange Commission of Nigeria (SEC) recognises cryptocurrencies as a financial asset and in September (2020), they had said they were going to put out a regulatory framework, and we know that Bitcoin and other kinds of cryptocurrencies have now become known as ‘freedom money’.”
He added: “We have to go back to understand what cryptocurrencies actually are, which are virtual currencies that can be exchanged online to purchase goods and services and the value is not determined by the value of legal tender currencies.
“But you would have to use legal tender currencies to purchase those cryptocurrencies, the most popular which is Bitcoin. Also, they don’t have an underlining value, so many people would say it is speculative because unlike a normal currency, that currency is backed up by either foreign reserves, the productive nature of the economy of the country that owns the currency and various other elements.”
“So, there is the financial stability aspect, there is political aspect, there is the private and economic investment aspect of it and there is the aspect of the business opportunities of the incomes and earnings of many young Nigerians who trade in this instrument. So, it is a very complex issue”.
Concluding he said, the directive by CBN was aimed at making the space difficult for people who deal in the virtual currency. Why was Moghalu speaking from both side of his mouth, and not call a spade, a spade? When he was at the Bank, were his policy action pro-people? You don’t thread facts on the head just to settle scores with perceived foes at the detriment of commonwealth.
We should all join hands with the government to battle the menace of terrorism, banditry and money laundering. Illicit funds from crypto would not grow foreign reserves, as they are outside the financial system.
The campaign of calumny against the CBN that the action will impact the youth negatively in view of high youth unemployment rate in the country is to say the least crazy and pure balderdash.
Rather our youths should be encouraged to continue to engage productively in legal and legitimate endeavours that will not only add value to their persons, but Nigeria as a whole.
Joy Nguri writes from Numam, Adamawa State.