Cryptocurrency ban ignites firestorm

By AYOOLA OLAOLUWA

The decision of the Central Bank of Nigeria (CBN) to shut down all cryptocurrency accounts in the country with immediate effect, has ignited firestorm, with many Nigerians, including politicians, economists and financial experts accusing the Federal Government of dragging back the country with retrogressive policies.
The CBN, it would be recalled, had last Friday, directed all deposit money banks, non-bank financial institutions and other financial institutions to shut down the accounts used for cryptocurrency operations in the country.
The apex bank, in circular BSD/DIR/GEN/LAB/14/001 obtained by Business Hallmark, ordered all financial institutions to identify persons and/or entities transacting in or operating crypto currency exchanges within their systems and ensure that such accounts are immediately closed.
It further warned that any financial institution that breached the directive would attract severe regulatory sanctions.
“Dealing in crypto currencies or facilitating payments for cryptocurrency exchanges is prohibited”, the CBN stated in the circular signed by its Director of Banking Supervision, Bello Hassan and Director, Payments System Management Department, Musa Jimoh.

However, criticism and condemnation have continued to trail the order, with many calling on the government to reverse the negative decision.
A lawyer and an associate within the Corporate Finance and Capital Markets Department of SPA Ajibade & Co, Olayanju Phillips, said the ban has exposed the seeming cluelessness of regulators who have struggled to keep up with the rapid developments in the industry
“The prohibition of trading cryptocurrency through withdrawal or deposit of money to a financial institution is clearly different from the prohibition of ownership of cryptocurrency. While the CBN is empowered by the Banks and other Financial Institutions Act to regulate the activities of financial institutions, including the facilitating of payments for cryptocurrency exchanges, it has no power to regulate ownership, use, or transfer of cryptocurrency.
“The outright ban of naira-backed cryptocurrency trading significantly restricts the potential growth of Nigeria’s burgeoning cryptocurrency industry.
“The necessity of balancing regulation with innovation has risen in recent years with the exponential growth of Nigeria’s FinTech industry, which has attracted significant interest from foreign investors.
“Although the rationale for the CBN’s decision is yet unknown, there are indications that it may not be unconnected with foreign currency controls and the 97% drop in remittances through official channels, between January 2020 and September 2020”.
Phillips bemoaned the hastiness with which the decision was reached, particularly without an attempt to engage the industry, describing it as harsh and unbecoming of a regulator of the financial industry.
“The CBN’s power to regulate the activities of financial institutions is being wielded capriciously to abort what has been described as the future of the global financial industry.
“In an age of globalisation, it will not be long before the country loses the opportunity to establish leadership in the regulation of cryptocurrency.
“A better approach may have been to utilise its recently created regulatory sandbox for the payments system to understudy the use cases of cryptocurrency within the system.
“Alternatively, the CBN may have developed a regulatory sandbox specifically for cryptocurrency innovations. This would have afforded the CBN a better opportunity to understand the risks and more so, the opportunities for the country to explore the industry.
“Following this, it may then attempt to regulate the cryptocurrency industry, by developing stopgaps to mitigate these risks, while ensuring Nigeria cultivates the strong interest of its teeming population in cryptocurrency”, Phillips said.
In his reaction on Saturday, former Vice-President Atiku Abubakar advised the Federal Government not to shut down the cryptocurrency business.
Atiku argued that government should instead regulate the sector rather than embarking on an outright shutdown.
The former vice president referred to the declining inflow of foreign capital into the country from $23.9b in 2019 to $9.68b in 2020, nothing that the economy needs an expansion rather than a contraction.
“The number one challenge facing Nigeria is youth unemployment. In fact, it is not a challenge, it is an emergency. It affects our economy and is exacerbating insecurity in the nation.
“What Nigeria needs now, perhaps more than ever, are jobs and an opening up of our economy, especially after today’s report by the National Bureau of Statistics (NBS) indicated that foreign capital inflow into Nigeria is at a four year low, having plummeted from $23.9 billion in 2019 to just $9.68 billion in 2020.
“Already, the nation suffered severe economic losses from the border closure and the effects of the #COVID19 pandemic.
“This is definitely the wrong time to introduce policies that will restrict the inflow of capital into Nigeria, and I urge that the policy to prohibit the dealing and transaction of cryptocurrencies be revisited.
“It is possible to regulate the sub-sector and prevent any abuse that may be inimical to national security. That may be a better option, than an outright shutdown.
“There is already immense economic pressure on our youths. It must be the job of the government, therefore, to reduce that pressure, rather than adding to it.
“We must create jobs in Nigeria. We must expand the economy. We must remove every impediment towards investments. We owe the Nigerian people that much,” the Peoples Democratic Party (PDP) chieftain stated.
Also speaking, a cryptocurrency expert, Ayomide Adunbi-David, said the CBN policy would negatively affect trade and discourage foreign investors from coming into the Nigerian market
“Generally, everybody is not happy. Personally, I think they are trying to halt the tempo of crypto business in Nigeria to give the big boys enough time to come into the business.
“The policy is not encouraging trade and foreign investors to start business. Other countries are trying to include crypto into their financial system, Nigeria is trying to block it.
“It only means two things: they are trying to frustrate people till they find a means to tax crypto transactiosn or they are trying to hold it for the main time pending when the big boys come in and cash out big on it. You know the way Nigeria is; it is all about knowing someone”.
He, however, maintained that the government was just chasing shadows, as the business of cryptocurrency has come to stay.
“Nigerians are the second-largest traders or miners of bitcoin in the world. It will take a lot more than this shallow policy to affect the market”, he said
Human rights activist, Segun Awosanya described the CBN’s move as ill-advised. “This is yet another developing horror story in our dying society. The government through the central bank is now shutting down cryptocurrency in a desperate move to block any ray of hope for the huge youth demographic they have largely failed. This won’t end well. This is ill-advised,” he said
The Chairman of Silverbird Television (STV), Senator Ben Murray Bruce, faulted the apex bank’s decision.
“I thought it is universal knowledge that decisions or policy regarding finance or economy should never be hasty”, he said.
A former Senator that represented Kaduna State at the National Assembly, Shehu Sani, lambasted the federal government for taking the drastic and ill-advised measure, insisting that it will be counter productive.
“Why the ban on cryptocurrency? Why are we running backwards?”, Sani tweeted on his verified page.
However, a professor of finance at the Nasarawa State University, Uche Uwaleke, said the CBN must have taking the decision because of the risk posed by unregulated crypto currency to the financial system.
“The CBN and the Securities and Exchange Commission (SEC) are not yet ready with regulations guiding crypto asset trading platforms operations in Nigeria”, Uwaleke noted.
Meanwhile, some cryptocurrency exchanges have announced measures to protect their Nigerian customers from the negative effects of the ban.
The founder and CEO of Binance, a cryptocurrency exchange, Changpeng Zhao, while noting that the order would affect naira deposits and withdrawals, advised the withdrawal of naira to avoid potential channel issues.
“Received notice from our channel partners that NGN deposits and withdrawals will be affected.
“Still confirming details on when/how. Please withdraw your NGN as early as possible to avoid potential channel issues. Will share more details as they become available.
“To err on the safe side, we have also disabled deposits to prevent more NGN coming in”, the Binance CEO stated.
Another cryptocurrency platform, Luno, told her Nigerian customers not to panic, assuring them that their funds remain safe.
Luno advised crypto traders to exercise patience, saying there’s no need to panic or take any action regarding their account at this time
The platform disclosed that already, naira deposit methods are currently affected on its platform as deposits via PayU and Flutterwave are unavailable until further notice.
“Luno will continue to operate as normal while we seek further clarity from the authorities. Some Naira deposit methods are currently affected, please check the status page for updates.
“Withdrawals are unaffected and will continue to be processed, but may take longer than usual. All customer funds are completely safe.
“There’s no need to take any action regarding your account at this time. We will update our customers on all incoming developments as soon as we receive further information, and certainly well in advance should withdrawals be affected.”
A leading peer-to-peer bitcoin marketplace, Paxful, had last year said Nigeria has the world’s second-largest Bitcoin trading volume.
Paxful said Nigerians traded 60,215 Bitcoins in the last five years (2016-2020), translating to more than $566 million.