It is no longer news that on the 5th of February 2021, the Central Bank of Nigeria reiterated its stance against Crypto transactions in Nigeria. Financial institutions in Nigeria (commercial banks & Fintech companies) were prohibited from participating in Crypto Trade. Banks in particular were mandated to close all accounts linked to crypto exchanges. In 2017, the CBN had earlier warned that cryptocurrencies were not legal tender and that investors were unprotected. Infact, this position was reiterated in another CBN Press Release dated February 27, 2018.
It should be noted that THE CBN DIDN’T BAN CRYPTOCURRENCY IN NIGERIA. They have to shut down the internet and acquire legal approval in achieving that. What the CBN did was to prevent the smooth flow of Cryptocurrency transactions. Cryptocurrency transaction involves the exchange of cryptocurrencies between Sellers and Buyers through a financial institution like the Bank. This means for buyers to purchase a crypto coin from Crypto Exchanges, they will need to send funds from their banks, hence the need for the banks. Therefore, what the CBN did was to stop the flow of funds from Buyers, through the Banks to the Crypto Exchanges, making the purchase of crypto coins difficult. Common Crypto Exchanges in Nigeria include Luno, Quidax, BuyCoins, Roqqu, etc.
Why Did the CBN Ban Crypto Trade in Nigeria?
Contained in the press release by the CBN, the Apex bank in Nigeria stated that Cryptocurrency doesn’t represent financial oversight, accountability, and regulation. It also highlighted significant risks involved in transacting cryptocurrencies such as loss of investments, money laundering, terrorism financing, illicit fund flows, criminal activities, etc.
The CBN also cited that Billionaire & Investor, Warren Buffett has called cryptocurrencies “rat poison squared,” a “mirage,” and a “gambling device.” Mr. Buffett believes it is a “gambling device” given that they are valuable because the person buying it does so, not as a means of payment; but in the hope, they can sell it for even more than what they paid at some point.
Nigeria isn’t only the country to place a ban on crypto transactions. China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Saudi Arabia, Jordan, Cambodia, etc. have all placed certain restrictions on cryptocurrency transactions.
The Ban’s Effects in Nigeria
The CBN Ban of crypto transactions in Nigeria received mixed feelings from Nigerians. While some people applauded the CBN on that initiative, others (notably Millenials and Gen Z ) weren’t happy about it but saw it as a political move. However, this ban hasn’t slowed down the involvement of Nigerians in the Crypto Space. Infact, Nigerians have found an alternative to how they buy and sell cryptocurrencies. Some of these are Peer to Peer transactions, Use of a Dollar Account, Use of Paypal ( for those with Paypal Account), use of crypto vendors, etc.
In as much as the CBN has good intentions to curb all forms of malicious acts & protect the financial interest of Nigerians, the Nigerian Financial sector might be missing out on lots of investment opportunities that can foster Economic Growth. Foreign Tech Companies such as Twitter have adopted Cryptocurrency, while many are beginning to adopt it.
This ban can dissuade these Big Tech companies from investing in the Nigerian Tech Space, as seen lately by Twitter who have opened their African Headquarters in Ghana, to the surprise of many people including Nigeria Minister for Communications.
Nigeria has accounted for crypto transactions worth over N566 million dollars in the last five years. According to the estimates, out of the top 10 countries for trading volumes Nigeria ranked third after the USA and Russia in 2020, generating more than 400 million dollars worth of transactions.
Some stakeholders have urged the apex bank to revisit the ban on cryptocurrency transactions. The Nigeria Economic Summit Group (NESG) advised the CBN to carry out a comprehensive study on the workings of cryptocurrencies to check its excesses, as they see digital currencies as another tool for economic growth.
The future will tell whether the CBN missed a golden investment opportunity from Big Tech companies that have adopted crypto. Nigeria is still the biggest market for cryptocurrency in Africa, will this record be kept? only time will tell.