The Central Bank of Nigeria on Sunday replied those criticising its ban on Cryptocurrency transactions insisting that the currency is issued by unlicensed entities.
The apex bank insists that apart from the fact that Cryptocurrencies are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria.
Many Nigerians including Former Nigerian Vice President, Atiku Abubakar, former Minister of Education Oby Ezekwesili had faulted the ban on cryptocurrency trading by the Central Bank of Nigeria, saying it may increase “economic pressure” already being experienced by youths.
But reacting in a statement on Sunday, the CBN said that it’s decision was premised on the fact that cryptocurrencies are largely speculative, anonymous and untraceable.
As a result of its untraceable nature, the apex bank said crypto-currencies are increasingly being used for money laundering, terrorism financing and other criminal activities.
It added that Small retail and unsophisticated investors also face high probability of loss due to the high volatility of the investments in recent times.
In light of these realities and analyses, the CBN said it has no comfort in crypto-currencies at this time and will continue to do all within its regulatory powers to educate Nigerians to desist from its use and protect the financial system from activities of fraudsters and speculators.
The statement said, “As regards our recent policy pronouncement, it is important to clarify that the CBN circular of February 5, 2021 did not place any new restrictions on crypto-currencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in crypto-currencies”
The apex bank stated that countries have all made similar pronouncements based on the significant risks that transacting in cryptocurrencies portend risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities.
It noted that China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have all placed certain level of restrictions on financial institutions facilitating cryptocurrency transactions.
In China, for example, the apex bank stated that cryptocurrencies are completely banned and all exchanges closed as well.
It added that banks and other financial institutions are not allowed by law to transact or deal with cryptocurrencies.
On the justification for its recent policy reminder, the apex bank said a perfunctory reflection on the definition of cryptocurrencies had already revealed several problems.
It said, “First, in light of the fact that they are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria.
“In effect, the use of cryptocurrencies in Nigeria are a direct contravention of existing law. It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and crypto-currencies.
“As the names imply, while Central Banks can issue digital currencies, crypto-currencies are issued
by unknown and unregulated entities
“Second, the very name and nature of cryptocurrencies suggests that its patrons and users value anonymity, obscurity, and concealment.
“The question that one may need to ask therefore is, why any entity would disguise its transactions if they were legal. It is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many
illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.
“Indeed, 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 crypto-currencies for illegal activities.
“In fact, the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known.
“They have also been recent reports that cryptocurrencies have been
used to finance terror plots, further damaging its image as a legitimate means of exchange.
“More also, repeated and recent evidence now suggests that some crypto-currencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices.”
The CBN said given that unlike Fiat Money which is accompanied by full faith and comfort of a country or Central Bank, crypto-currencies do not have any intrinsic value and do not generate returns by themselves.
It added, “When one buys a stock, say of a conglomerate in the Nigeria Stock Exchange, its price reflects the activity and production of that conglomerate and the value people place on their goods and/or services.
“This price may rise as the conglomerate produces better goods/services and probably gains greater market share. The reverse would be true if the conglomerate does not innovate to improve the quality of its goods/services. In other words, the price of that stock reflects market fundamentals.
“In contrast, cryptocurrencies do not have fundamentals and would never have fundamentals. Investors only buy in the hope that its use and acceptability will rise, thereby pushing up its demand and price.
” But since new versions of cryptocurrencies come on stream with new
mathematical models, an infinite supply may someday crash the price to zero.
“At this juncture, the CBN would like to assert that our actions are not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.
“To the contrary, the Nigerian payment system has evolved significantly over the last decade, leapfrogging many of its counterparts in emerging, frontier and advanced economies propelled by reforms driven by the CBN.
“This is evident from the variety of participants, products, channels, cutting-edge technology in the payments system. It is also validated by the astronomical growth of volume/value of transactions and the fact that Nigeria is an investment destination of choice for international financial technology companies because of CBN’s policies that have created an enabling investment environment in the payments system.”
The apex bank said these developments in the payments and settlements space has helped to grow the financial system, improving financial inclusion.
It noted that the quality and convenience of financial services has also created millions of direct and indirect jobs for teeming youth population.
It said the innovations in Nigeria’s payment system were catalyzed by regulatory reforms driven by the CBN which entailed the issuance of a raft of guidelines and regulations on Operations of Electronic Payments Channels in Nigeria; Transaction Switching; Card Issuance and Usage, Licensing of payment service providers; Mobile Money Services, Electronic Payments of Salaries, Pensions, Suppliers and Taxes, Licensing Super Agents in Nigeria; and use of USSD for Financial Services in Nigeria, Super Agents and Agent Banking Operations and Payment Service Banks.
It said several other initiatives are being implemented to further support FinTech development and creation of jobs.
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