Following steps of some countries like China, Canada and Egypt, the Central Bank of Nigeria (CBN) on February 5, 2021, issued a circular to banks and other financial institutions, instructing them to refrain from transacting in cryptocurrencies and enabling payment for cryptocurrency exchanges.
The apex bank also ordered all banks and other financial institutions to identify and terminate the accounts of people or businesses that deal in or run cryptocurrency exchanges.
Critics have suggested that cryptocurrencies have the potential to undermine the existing financial infrastructure systems, and governments around the world, including Nigeria, have kept a wary watch on these currencies.
As with most CBN directives, the news was received with mixed reactions, with many analysts expressing concern about the possible detrimental impact it may have on the country’s cryptocurrency sector and financial technology innovations.
However, the CBN’s announcement of the ban wasn’t an unexpected development as the regulator had earlier in 2017 expressed its disapproval of the digital currency and subsequently issued a stern warning.
But the instruction was optional at the time. Banks were still permitted by the CBN to transact and interact with crypto firms, but only at their own risk.
That changed in 2021, but not in the way most people expected. Rather than the friendlier restrictions that many had hoped for, the regulator opted for an outright ban on crypto transactions in the country.
The apex bank, to the surprise of many, enforced a ban and vehemently warned both people and banks against indulging in its sale and circulation. According to the regulator, it can’t guarantee users’ safety and, as such, can’t protect Nigerians nor recover any losses incurred from dealing in them.
Intervention by the Nigerian Senate
Days after the crypto ban, the Senate summoned the Governor of the Central Bank of Nigeria, Godwin Emefiele, and the Securities Exchange Commission for an explanation.
The Senate asked the Federal Regulator and the Securities and Exchange Commission to brief its Committees on Banking, Insurance, and Other Financial Institutions, ICT and Cybercrime, and Capital Markets on the opportunities and threats of cryptocurrency to the nation’s economy and security, and to report back within two weeks.
According to the senate, the information provided at the meeting by both regulatory organizations will help it “evaluate the prospects and hazards of cryptocurrencies on the nation’s economy and security”.
The Senate’s involvement meant that there was hope for a reversal, but it has yet to materialize even after a year.
A spike in P2P trading
Crypto trading organizations have been some of the biggest beneficiaries of the ban as they saw a large increase in business as Nigerians shifted their bitcoin transactions to peer-to-peer (P2P) exchanges. The P2P exchange is merely a marketplace that connects buyers and sellers.
In less than a week after the CBN issued a directive prohibiting banks from engaging in any crypto-related activity, crypto enthusiasts in the nation appeared to have moved on from the prohibition and began looking for methods to circumvent the CBN’s restrictions and profit from the expanding crypto market.
As a result, P2P trade became a darling to most. P2P transaction volume in Nigeria reached $7.35 million during this period, up by $1 million from the $6.35 million processed prior to the ban. Nigeria continues to be one of the largest markets for cryptocurrency trading platforms with the crackdown emphasizing the advantages of utilizing currencies that are not controlled by the central bank.
A report by Reuters suggests that experts and users confirmed that Nigerians are using cryptocurrency for business, to preserve their investments as the naira depreciates, and to transfer money overseas since it is difficult to get US dollars.
CBN Launches E-Naira
In June 2021, the Central Bank of Nigeria (CBN) announced its intentions to establish a digital currency called the “e-Naira” by October 2021, joining 81 other nations that are seriously investigating digital currencies.
On Monday, October 25, President Muhammadu Buhari unveiled introduced the eNaira at the State House. He said in his address that it would boost remittances, promote cross-border trade, expand financial inclusion, and make it easier for the government to deliver welfare payments.
The CBN made its conclusion on digital money technology after nearly two years of deliberation. The currency, according to the apex regulator, will help achieve 80 per cent financial inclusion by the end of 2021.
The CBN is struggling to make its digital currency gain appeal since.
Court rules in favour of crypto companies
Weeks after the announcements by the CBN, an apex bank in the country’s capital froze the accounts of various fintech businesses. These include Risevest Technologies and Bamboo Systems Technology Limited, for 180 days on August 17 over alleged crypto and FX infractions.
These businesses challenged the action in court, arguing that there was no evidence that they had participated in criminal behaviour and that the CBN had failed to fulfil its burden of proof in support of its claims.
A judge at the Federal High Court, Taiwo O. Taiwo ordered the temporary unfreezing of accounts belonging to the said companies. The judge held that the CBN could not rely on a circular to freeze a company’s bank account, contrary to what the Central Bank might have expected.
The court also stated that the CBN has failed to show any law proving that bitcoin trading is illegal in Nigeria. Until the CBN obtains a court order, it is illegal for the CBN to block users’ accounts for the purpose of trading in cryptocurrencies.
Crypto trading remains significant a year after the ban
The Apex bank continues to uphold its stance on the negative implications these virtual currencies possess, despite experts arguments for regulation instead of a prohibition. Although the central bank has continued in its fight against crypto transactions, crypto trading in the country remains significant.
Crypto transactions are still on the rise in Nigeria, Africa’s biggest crypto market, with a report indicating that on an annual basis, Nigeria’s peer-to-peer transactions increased by 16 per cent.
Nigeria currently has $400 million in P2P volumes on two major P2P platforms of Paxful and Localbitcoins, followed by Kenya with $160 million and South Africa with $117 million, indicating that with the CBN cryptocurrency ban, little has rarely changed.
This trajectory will not likely change.
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