The Central Bank of Nigeria has banned banks from servicing crypto exchanges in the country in a move that echoes actions taken by its Indian counterpart back in 2018. Reactions to the news among the political class have been divided among ethnic and geopolitical lines, with the more progressive elements calling for a nuanced approach by the apex bank.
In November 2020, Nigeria’s gross domestic product declined for a second successive quarter, plunging the nation’s economy into another recession — the second in the space of five years. According to the Nigerian Bureau of Statistics, 26 out of the 36 Nigerian states did not receive any foreign investments in 2020.
Even before the onset of the coronavirus pandemic, Nigeria’s economy had been battered under the perceived mismanagement and ineptitude of the current administration. However, the country’s cryptocurrency economy had been flourishing in the same time period.
Nigeria has become a hub for crypto adoption, with Google Trends data showing the country as No. 1 in the world in terms of search interest for Bitcoin (BTC). Starved of access to forex, Nigerians have been turning to cryptocurrencies as the next best thing to preserve their wealth against the rapidly declining naira.
CBN not a fan of Bitcoin
Earlier in February, the CBN issued a circular directing all financial institutions to cease rendering services to crypto exchanges. The notice also mandated banks to shut down the accounts of any individuals or entities found to be engaging in cryptocurrency trading activities.
Defending its position, Nigeria’s central bank resorted to the usual arguments: volatility, money laundering, terrorist financing, Silk Road, and “rat poison,” among others. The CBN even highlighted the actions taken by the likes of Bangladesh, Ecuador, Egypt and Nepal, to mention a few, as justification for its ban. In a statement clarifying its position, the CBN remarked:
“The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto assets transactions.”
Amid the furor occasioned by the prohibition, the central bank declared that the announcement was not a new decision but, rather, a restatement of its earlier position from 2017. However, the 2017 communique in question only warned banks against holding or trading crypto; there was no mention of any ban on financial institutions providing account services to cryptocurrency exchanges.
For some crypto proponents in Nigeria who spoke to Cointelegraph on the promise of anonymity to prevent any negative actions from their banks, there is an insidious undertone to the CBN’s action. For one, some claimed that the ban is part of efforts to support “their friends” in the Bureaux de Change business.
Indeed, principal actors in the BDC scene have come out in support of the move, calling it a step in the right direction regarding Anti-Money Laundering efforts. Meanwhile, crypto trading on exchanges in Nigeria was in adherence to strict Know Your Customer protocols involving verification steps, including the all-important bank verification number.
With the CBN blocking foreign remittances in naira, crypto adoption was gaining even more ground in Nigeria. Tech-savvy Nigerians dissatisfied with the services and exorbitant rates of BDC operators could have access to forex via cryptocurrencies, especially fiat-pegged stablecoins.
There are also rumblings that the CBN’s action is part of the government’s continued clampdown on the October 2020 “EndSARS” protests against the special anti-robbery squad — the rogue police unit implicated in numerous extortion and extrajudicial execution cases. When banks shut down the accounts of individuals and entities supporting the protests, many switched to cryptocurrencies as a way of circumventing the attempted financial censorship.
The crypto criminality question
According to the CBN, the government has received complaints from the United States Federal Bureau of Investigation about the activities of scammers using crypto. Indeed, back in July 2020, Cointelegraph reported on an FBI complaint about alleged Nigerian scammers using cryptocurrency to siphon millions of dollars.
The CBN even went further to exaggerate the use of crypto by criminal enterprises stating: “Many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities.”
While there are instances of the criminal use of cryptocurrencies, the volumes of such activities are insignificant when compared to the overall global crypto transaction matrix. In its 2020 crypto crime report, blockchain intelligence firm Chainalysis revealed that only 0.34% of the cryptocurrency transactions in 2020 were involved in illicit activity.
The report further indicated a decline in crypto crime as legitimate cryptocurrency commerce almost tripled in volume between 2019 and 2020. In a conversation with Cointelegraph, Danny Oyekan, founder of blockchain firm Dan Holdings, remarked that the CBN’s rhetoric only deflects from the true utility of cryptocurrencies, adding:
“For a long time, crypto has been associated with nefarious activities, but in reality, fiat currency is used 10x more than crypto for criminal purposes. […] Banning access to crypto will affect a country more negatively than the criminal activity the industry is falsely associated with.”
David Ajala, CEO of NairaEx — one of Nigeria’s oldest Bitcoin exchange platforms — also faulted the CBN’s characterization of crypto as a tool for criminal activities, telling Cointelegraph, “it is a false narrative to assume that the majority of cryptocurrency is used for criminal activity.” He added:
“It is the job of the regulatory body to start figuring out ways to curb illegal activities on the blockchain just the same way processes and framework are used to curb illegal activities using fiat, and we believe one of the best ways is for regulatory bodies to work with crypto-fiat exchanges, as exchanges currently serve as gatekeepers for people dealing in cryptocurrencies.”
Crypto solves Nigeria’s skyrocketing unemployment
While still in its early days, the CBN ban seems to have done little to alter Nigeria’s established hyperbitcoinization culture. But with banks already reportedly shutting down accounts connected with crypto trading, users in the country are embracing peer-to-peer channels even more. For Ajala, the economic benefits associated with crypto involvement far outstrip any inconveniences occasioned by the CBN ban, adding:
“Cryptocurrencies have served as economic empowerment to millions of Nigerians using trading as a source of income and have become a hedge against a high inflation rate of over 15% in the country.”
According to him, the booming crypto industry has contributed to solving the unemployment crisis in the country. Indeed, Nigeria’s unemployment rate has more than tripled over the last five years, a situation further worsened by the COVID-19 pandemic. Ajala added: “There is a minimum of 100 startups in Nigeria that operate in the blockchain industry either as exchanges, educators, digital assets management firms, etc. They have all employed thousands of Nigerians.”
For Oyekan, Nigeria stands to benefit a great deal from policies aimed at supporting the burgeoning crypto market. “Nigeria ranks eighth in global adoption of cryptocurrency and is ranked first in peer-to-peer payments, moving $139 million in the past year,” he noted to Cointelegraph, adding:
“In emerging markets where local currencies are extremely volatile, providing access to a financial system, like the one crypto and blockchain technology provides, does more good than bad. It empowers the unbanked, aids in creating wealth, and creates financial stability.”
Oyekan is of the opinion that the central bank should consider nuance regulations rather than outright bans. According to him, the CBN should set up a licensing regime for crypto companies while considering holding Bitcoin on its balance sheet.
Meanwhile, Nigeria’s Securities and Exchange Commission has halted its planned regulatory sandbox for crypto businesses following the CBN ban. According to the SEC, the decision was taken because qualified businesses under the sandbox framework are currently prohibited from holding bank accounts in the country.
The finance ministry had previously been collaborating with the SEC to create a legal framework for crypto and blockchain in Nigeria. At the time, the move was seen as a significant step in boosting the country’s growing digital economy.
Ray Schuetz received a Masters Degree in computer science from The University of Texas (Austin). Ray has been working as a full-time blockchain consultant for the past 3 years. In his spare time, Ray enjoys writing for EthereumCryptocurrency.com and other crypto news publications.