The backlash against a Nigerian central bank directive on crypto currencies echoes a dilemma facing governments around the world: how to regulate Bitcoin and other crypto currencies without stifling innovation
Lagos, Nigeria – When the Central Bank of Nigeria (CBN) issued a circular in early February warning banks and financial institutions that “facilitating payments for cryptocurrency exchanges is prohibited” and that they needed to identify and close accounts associated with them, it set the country’s crypto community alight.
“I was in a danfo [a yellow public transport bus that operates in Lagos] heading home when my phone started buzzing with WhatsApp notifications regarding the CBN ban on cryptocurrency transactions,” said David Akinwale, a 25-year-old financial analyst who trades in crypto currency. “It was really disappointing and sad. While other countries are embracing the use of Bitcoin and crypto currency, Nigeria is doing the reverse.”
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This week, a representative for Nigeria’s central bank chief Godwin Emefiele reportedly sought to clarify the February 5 directive, telling reporters that it was not aimed at discouraging people from trading in crypto currencies like Bitcoin, but served to enforce orders in place since 2017 banning crypto transactions in the country’s banking sector.
But the 2017 directive did not prohibit crypto exchanges from using banking and payment channels. It simply required banks and financial institutions to ensure that their crypto-exchange customers have effective anti-money laundering and “anti-terrorism” financing controls in place. The backlash and confusion echo a crypto-drama unfolding around the world as virtual currencies like Bitcoin grow in popularity and scale new heights during a time of unprecedented financial uncertainty stemming from the coronavirus pandemic, as well as uniquely domestic challenges.
Nigeria’s Central Bank Governor Godwin Emefiele [File: Afolabi Sotunde/Reuters]In the United States this week, Federal Reserve Chairman Jerome Powell raised concerns about the role crypto currencies play in facilitating criminal activity, as well as their infamous volatility, calling Bitcoin “more of an asset for speculation” than a substitute for the US dollar.
In Iran, officials recently targeted crypto exchanges and even pinned blamed for high levels of air pollution on Bitcoin mining.
The developments illustrate the regulatory conundrum government’s face with crypto assets that by design are intended to be decentralized and beyond their reach, but which are part of a rapidly evolving sector of global finance that pivots on innovation.
Africa’s biggest Bitcoin market
Nigeria is Africa’s largest economy, its most populous country, and home to one of the youngest populations in the world. Throw in a burgeoning tech sector and it’s easy to see how Nigeria has become the continent’s largest Bitcoin market by trading volume, according to UsefulTulips.org, which gathers data from crypto exchanges Paxful and Local Bitcoins.
That ascent to Bitcoin prominence is rooted in a sharp fall in remittances during the pandemic, as well as the country’s state coffers and local currency, the naira, being ravaged by the twin blows of COVID-19 restrictions and plummeting crude prices.
Nigeria’s currency, the naira, was ravaged by the twin blows of COVID-19 restrictions and plummeting oil prices [File: Afolabi Sotunde/Reuterss]In an effort to keep increasingly scarce US dollars from leaving the country last year, some Nigerian banks reportedly placed curbs on offshore debit card transactions and limited cash withdrawals.
Against this backdrop, Bitcoin and other crypto currencies soared in popularity last year, as both a hedge against the eroding purchasing power of the naira, as well as a way to move money around more easily.
‘With Bitcoin, I could bypass the $100 limit on my naira debit card and do all my transactions seamlessly,” Bola Williams, a 33-year old software developer, told Al Jazeera. “But the ban on crypto has now made it even more stressful.”
But it does not appear to have curbed appetites for crypto. Bitcoin trading volumes on Paxful and Local Bitcoins topped $9m in the seven days ending March 8, according to UsefulTulips.org, compared to roughly $7.55m in the seven days ending February 8.
The data suggest that despite the CBN directive, Nigerians are determined to leverage crypto currencies to increase their earnings, especially with rising inflation and limited access to foreign exchange liquidity.
“The ban was never going to stop a ship that is far gone on sail,” Eric Annan, co-founder of crypto currency trading platform KuBitX, told Al Jazeera.
Author: Torinmo Salau
Source: Aljazeera
By: William Rahim Chinedu
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