On Friday, February 5, the Central Bank of Nigeria announced that it had banned cryptocurrency trading in Nigeria. The apex bank mandated commercial banks to close all bank accounts in connection with crypto transactions. Over the years, Nigerian authorities have always found it challenging to separate “substance from shadow” in digital innovations. This challenge has shaped the regulatory approach to crypto transactions in Nigeria.
One begins to wonder what they hope to achieve with such a draconian move. The focus of this post is to analyze the possible impact of this ban on crypto in Nigeria. Is there a way out for crypto startups in Nigeria, young Nigerian crypto traders, etc.? Keep reading as we promise to bring it bare for you to see.
What is the Position of Nigeria’s CBN on Crypto Trading?
On Friday, 5, 2021, the Central Bank of Nigeria released circular directing commercial banks and other financial institutions that crypto payment is prohibited. The CBN mandated all these financial institutions to identify and close any account connected to crypto transactions in the same circular.
Nigeria’s Central Bank ban on crypt on further extends and expands the apex bank’s previous directive in 2017. You could recall that the CBN had, on January 12, 2017, cautioned Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs), Other Financial Institutions (OFIs), and the general public on the dangers of crypto trading.
Possible Reasons for Nigeria’s Central Bank Ban on Cryptocurrency Trading
Understanding why CBN has placed a crypto ban is vital to know how to go around it. In the circular released, the Central Bank of Nigeria did not give any reason for the crypto ban. The only hint can be found in the second paragraph where it was stated, “…the Bank (CBN) want to remind regulated financial institutions that dealing in cryptocurrencies or facilitating payments for crypto exchanges is prohibited.”
The above sentence is pointing to the circular released by CBN in 2017. So, what made the CBN threaten sanctions on a policy it hasn’t enforced since 2017? Although CBN did not give us any answers, we can make a few educated guesses.
One of the pointers to Nigeria’s Central Bank ban on cryptocurrency could be found looking at the 2020 remittance figures. Between January 2020 and September 2020, remittance through official channels fell from $2.05 billion to $54.4 million. This is a massive 97.3% fall. Exchange rate control has been one of the major concerns of the Buhari administration. During his campaign, the president made a promise to make one Naira equals one dollar. Ironically, the Naira has been on a free fall since this administration took office. The CBN is faced with a big challenge to stop the Naira’s free fall.
In their bid to achieve this, the CBN implemented many remittance policies. Most of these policies have been misses. The “poor” state of the traditional banking system and the combination of CBN’s policies brewed dissatisfaction among many Nigerians. Therefore, Nigerians sought easy and efficient alternatives. Crypto companies have been doing their best to solve the remittance issue but without the cover and control of the CBN.
The Impact of Nigeria’s CBN Ban on Crypto on Nigerians
We wait to see whether the ban on crypto transactions will be enforced, but there has been palpable tension in the air. If Nigeria’s Central Bank ban on cryptocurrency trading is enforced, it will prevent Nigerians from funding and withdrawing from their crypto exchange account.
Although the ban does not criminalize crypto ownership, it makes crypto trading more difficult for Nigerians. The Nigerian crypto industry, which is one of the most developed, is likely to face severe scrutiny going forward. After a successful 2020, local crypto startups in Nigeria were all looking forward to a better 2021. Some potential fundraisers and acquisitions were discussed at the beginning of the year. However, with Nigeria’s Central Bank ban on cryptocurrency, all plans are now on hold till further notice.
Is there a way forward for Cryptocurrency Trading in Nigeria?
The general public needs to understand that the CBN’s circular is not a direct ban on cryptocurrency in Nigeria. CBN doesn’t have the power to ban crypto trading. The circular implies that all financial institutions regulated by CBN will no longer facilitate or be part of crypto transactions.
The way forward can only be peer-to-peer (P2P) transactions. Since crypto ownership is not criminalized, Nigerians can still trade amongst themselves. However, traders need to ensure that financial institutions do not know what they are paying for. The decentralized nature of crypto ownership makes it possible for people to buy and sell among themselves.
Although Nigeria’s Central Bank ban on crypto has led to a lot of glitches in the industry, there is still hope for crypto startups in Nigeria. There are a number of options to be explored, but none of them are easy. One tough lesson every founder in Nigeria learns is that there are no easy ways to build a startup. Time will tell who will have the last laugh in this case. I hope the founders of crypto startups and fintech have the last laugh.