Posted by Shola Akingboye, 17th April, 2021
In the past years, cryptocurrencies have taken a prominent place in the global financial landscape. Ever since Bitcoin was created in 2009, all cryptocurrencies’ global market capitalization has grown above $1.5 trillion and it keeps growing rapidly. Although cryptocurrencies are still not a legal tender in many countries, the rapid rise in their value has contributed to their growing popularity and increasing adoption among the populace as a medium of exchange and a store of value.
Nigeria has witnessed incredible growth in the acceptance of cryptocurrency in the past couple of years. According to data from leading exchanges, the total volume of cryptocurrency trades was put at $400 million in 2020. This implies that a lot of Nigerians are increasingly willing to buy bitcoin and invest in cryptocurrency.
However, crypto growth in the country is being threatened. Recently, the Central Bank of Nigeria (CBN) issued a directive prohibiting banks and other financial institutions from facilitating crypto transactions. It further instructed these bodies to identify individuals or organizations making cryptocurrency transactions and close their accounts with immediate effect. It also threatens that entities that go against the circular will face serious regulatory actions.
Unsurprisingly, the ban raised major concern amongst the public. Many were concerned about the potential negative effect it could have on the country’s booming crypto market.
Why has the CBN banned cryptocurrency?
In a later press release, the Central Bank of Nigeria put forward some interesting points to defend its decision. It says cryptocurrencies are not legal tender as they are issued by unregulated and unlicensed bodies. It also pointed out that the anonymity surrounding cryptocurrency makes it susceptible to illicit use and other financial crimes.
CBN also mentions the extreme volatility of some cryptocurrencies and has made them widely used as speculative assets rather than as a means of payment. It warns that if these platforms should collapse, people risk losing their money without any legal redress.
However, closer scrutiny of the stated reasons will reveal the flaws in the judgment. To point this out, it is important to first understand the reasons that have contributed to the growth of cryptocurrency in the country.
Why have Nigerians embraced the use of cryptocurrency?
According to statistics, Nigeria is Africa’s largest P2P crypto market and 3rd in the world. Last year, there was a 30 percent increase in crypto trading in the country. Beyond the flexibility and speculative benefits that crypto offers, several other reasons have led to its rapid growth in the country.
One main reason is the strict foreign exchange policy of the Central Bank. Another is the high charges when transferring money in and out of the country. To avoid this, Nigerians use cryptocurrencies to transfer money as it offers an efficient means to bypass the forex restrictions and with reduced charges. Also, last year, Naira was devalued twice by CBN. The decline in Naira value has led Nigerians to use crypto as an alternative to grow and protect their businesses against currency devaluation
Why the crypto ban seem baseless
In defending its position, CBN says the speculative and anonymous nature of cryptocurrency has made it a tool for illicit crime activities such as terrorism financing, tax evasion, and money laundering.
However, quick research shows that financial crimes have been existing in the country before the emergence of cryptocurrency. Additionally, fiat currencies remain the most frequently used form of committing financial crimes. According to an excerpt from Chainalysis 2021 report, about 2.1% of all cryptocurrency transactions in 2019 were illicit. These numbers further fell to 0.34% in 2020. This is far lesser when put side by side to the numbers from fiat currencies. According to the UN, 5% of the global GDP is in direct use for illicit activities.
Source: The Nation