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Cryptocurrency Ban and its economic implications in Nigeria.       

By Ikenna Igwe

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In the last four years, cryptocurrencies especially Bitcoin have become ubiquitous, prompting both global and domestic monetary authorities to devise a means to regulate and accept their usage. In Nigeria alone, the crypto market has expanded so much that the volume of Bitcoin traded monthly is estimated at $200mn according to Buycoin, one of Nigeria’s largest cryptocurrency exchange.

Background to the Ban

Digital currencies have proved to be highly volatile and risky, forcing several regulatory bodies including the Central Bank of Nigeria (CBN) to earn against huge investment in the crypto market. In a letter dated 5th February, 2021, the Nigerian government through its apex bank, the Central Bank of Nigeria (CBN), clamped down on cryptocurrency in Nigeria. The letter mentioned that all banks and financial institutions must comply with the following directives:

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1)Stop the facilitation of payment for cryptocurrency exchange

2) Identify persons/entities transacting in cryptocurrency within their system and close such accounts.

A degree of public backlash followed the letter that made the CBN release a rejoinder attempting to clarify the reasons for the ban. Some of the reasons given were:

~Transacting in cryptocurrency carries the risk of loss of investment, money laundering, terrorism financing, illicit fund flows and criminal activities.

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~There is an extreme price volatility of cryptocurrency preventing it from being a viable option as a lasting means of payment.

~Being unregulated, cryptocurrency violates the CBN Act as the only institution that can create a legal tender.

With the release of the letter, cryptocurrency was made categorically illegal in Nigeria. Major financial technology companies including Chaka, Bamboo, Kuda and Piggyvest, among others notified their customers. However, it has to be said that there are alternatives for cryptocurrency transactions regardless of the ban. Cryptocurrency retailers and other outfits are now making recourse to Peer to Peer (P2P) trades.

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P2P trades are trades between individuals without intermediation by a third party, typically a corporation or business. Binance launched an Express mode for P2P trades in Nigeria. This means that users can now buy and sell on the platform without going through banks as a third party.

Although it is fair to note that countries like China have also outlawed cryptocurrencies, where there created a state owned cryptocurrency known as DC/EP, but it appears to be some sort of communist approach, where the government seeks to own and regulate almost everything.

Effects of the ban

1)The ban on cryptocurrency will also no doubt decrease investors’ confidence in the Nigerian market. It tends to heighten the regulatory risk associated with doing business in Nigeria and reduce the rate at which venture capital or other investors are willing to fund innovations in Nigeria.

2)The fast expansion of the Nigerian crypto market has created numerous jobs especially for the youths and the ban will affect individual home based traders. Stopping the operation of the emerging crypto market could mean more job loss and will also tend to trigger a faster increase in the rate of unemployment which is already projected by the Presidential Economic Advisory Council (PEAC) to increase up to 40% by the end of 2021.

A new game changer (E-Naira)

In October 2021, the Nigerian government and its apex bank, the Central Bank of Nigeria (CBN) launched a new digital currency called E-Naira, which is basically a digital representation of the paper naira and coexists with it as an additional form of money. It has the same value as the physical naira and guarantees simple, safe and fast transfer and payments anytime and anywhere. The introduction of the E-Naira will indeed be a game changer to the Nigerian economy. It is a great leap in the country’s digital economy and shows a touch of pacesetter mindset from the federal government.

A digital and borderless naira will foster diaspora remittance and cross-border trade. This digital currency definitely promotes financial inclusion and enables the government to make welfare payment easier and faster. The possibilities that the E-Naira hold are huge, although it is still in its “infancy”, we have to watch and see how it plays out in the long run.

From all indications, the crypto market is not going anywhere soon. Therefore, it is vital and paramount for the CBN to invest in understanding the market and utilizing it to attract much needed investment inflows.