:And the real reason behind the CBN’s directive
Like everything that affects man and touches his very source of livelihood, the Central Bank of Nigeria’s directive on the restriction of the use of Bit coin- crypto currency transactions in Nigeria, has caused a lot of brouhaha across the nation; leading many to ask at whose interest is the ban on crypto currency? Who are those hurting from its use? Is the Bit coin a threat to the naira? What are its pitfalls? And can the government regulate these digital transactions?
The controversy rages, and the CBN has continued to receive flaks from all stripes of Nigerians; with many others calling on the intervention of the National Assembly to debate the matter on the floor of the NA.
First, let’s look at what crypto currency is all about. Crypto currency is a digital currency encryption techniques used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. It is also seen as a digital asset or electronic money (currency or medium of exchange) that is designed using crypto graphy ,a secret code, in order to ensure its security and anonymity. It’s attractiveness lies in its ease of generation, storage, management and accounting. Operating based on a technology called ”Block chain”, it is largely designed to work without sovereign regulation and are protected from being discovered by government authorities for supervision
The law authorizing the use of Bit coin came into effect in 2017. And As at August 2018, records revealed that over 1,600 crypto currencies were available on the internet. Currently, the virtual currency has rapidly grown to over 2000 crypto currency.
Aware of its popularity, the Security and Exchange Commission, SEC, only recently, issued a statement by which they recognized the Bit coin, but warned that people should be careful of dealing with unauthorized crypto currency dealers. The sudden ban on the crypto-trading by the CBN, jolted the community of crypto currency enthusiasts. And the question on the lips of many is; why the sudden shift? Why the sudden ban in crypto currency now, when the rest of the world is embracing crypto trading.
Giving reasons for its action, the apex bank has, in a statement it issued recently, said the directive was given because of the nature of crypto currencies which makes them well suited for a host of nefarious activities such as money laundering, tax evasion, drug trafficking etc. The statement said it was done to protect Nigerians and the youths from risks associated with such dealings, where there is little or no regulation. The government through the CBN also claimed the ban on crypto currency was to check activities of money laundering and terrorism normally known to be carried out through such digital transactions.
Giving credence to this reason is the fact that there is no central authority to supervise or regulate the activities of the crypto currency transactions thereby making it vulnerable to exploitation for illegal purposes such as economic crimes. But, again, the people have vehemently disagreed with the views held by government, stating that risk is an integral part of every business, and that government, to say the least, is being economical with the truth. “Life is all about risks, including being a Nigerian and living in Nigeria”, says Oyinlola Damilola, an undergraduate in one of Nigeria’s universities. She is of the opinion that CBN should not kill the entrepreneurial skill , zeal and opportunities available, for the teeming unemployed youths; by hindering people from going into any form of business they desire to go into as long as it is legal and they don’t have to resort to government when they lose money.
Conversant with the criminal tendencies associated with its usage, analysts, are of the opinion that Nigeria should try to understand what exactly the technology is all about and what benefits there are for the country and people, before assigning certain regulations to its use and operations. It could take a cue from counties like India, where the use of Bit coin was banned, but the supreme court of the land overturned the decision, adding that more countries are undertaking studies on how to better harness the benefits of the digital currency for their countries and citizens. Crypto currency is the future, and even countries who have tried running away from it had to do a u- turn. China is one of the countries said to have banned crypto currency, but it currently runs a government instituted crypto currency that is in use.
Why the hoopla about crypto currency? The saying goes that there is no smoke without fire. In finance the belief is that people follow the money.
Nigeria is known to have the world’s second largest Bit coin trading volume after the United States of America, according to Paxful, a leading peer-to-peer bit coin marketplace. Nigerians have traded 60,215 Bit coins in the last five years, or more than $566 million USD.
Bit coin trading volume was already growing at 20% per year. Then 2020 happened and created a 30% trading spike, with over 20,500 coins traded, or $451 million USD in this year alone. Obviously, COVID-19 pandemic response fuelled interest in crypto currencies. Yet that isn’t the full reason that Paxful reported a 137% increase in new registrations in Nigeria this year.
With the teeming population of smart but unemployed youths, known for their ingenuity, it is little wonder then that Nigerians constitute one of the world’s largest drivers of Bit coin adoption.
There are four trends that are accelerating Nigerian crypto currency adoption:
- Support for EndSARS Protests
Protests for the disbandment of the special anti-robbery squad (SARS) peaked this year. The police unit stands accused of illegal killings, extortion and torture of innocent civilians: many of its victims were young men between the ages of 18 and 35.
As part of the protests, the #EndSARS hashtag went viral on social media, leading to protests in countries with large Nigerian diaspora populations. Concurrently, local activist groups started raising funds in cryptocurrencies. The Feminist Coalition raised $155,000 in Bitcoin, 40% of their $387,000 total.
- Central Bank Naira Restrictions
The Nigerian Naira is on a multi-year drop versus the US dollar. 2020 was no different. Naira started the year around 360 to the dollar on “parallel markets” and is now close to crossing the psychologically important 500 Naira line.
However, the Central Bank insists that these black market rates are illegitimate and the real Naira value is 25% higher. The import controls and monetary restrictions it uses to support that official rate is driving businesses to seek other ways to transact with international partners.
- Diaspora Remittance Payments
Nigerian Diaspora are also looking at cryptocurrency as the Central Bank shifts policy daily around who and what can be remitted to Nigerians. Remittances in 2020 will exceed $22 Billion USD and the Central Bank is trying to use this massive monetary inflow to prop up the Naira.
For example, the Central Bank has banned payment service providers, Mobile Money Operators, Switches, and Processors from receiving diaspora remittances. At the same time, International Money Transfer Operators must pay remittances in US Dollars.
- SEC Regulatory Acceptance
In September, the Nigerian Securities and Exchange Commission said it would develop a regulatory framework for cryptocurrencies in the country. In November, Nigeria’s Federal Ministry of Finance announced discussions with the SEC to provide a regulatory environment for blockchain-based digital assets.
This would mean that digital assets like Bitcoin would be recognized as commodities and governed by appropriate securities law. The SEC would regulate this new asset class, not hinder adoption or innovation. Nigeria’s National Information Technology Development Agency even announced a National Blockchain Adoption Strategy Framework.
With this new directive from the CBN, many are of the opinion that there is more to the directive than meets the eye, and that according to Oby Ezekwesili, former minister of education, Nigeria, by the singular act has shown that “it is unprepared for the future”. Responsible governments try to harness the enormous opportunities in the cryptocurrency transactions to grow their economy and improve the lives of their citizens.
With reports from ICT works