BY EMEKA EJERE |
If a proposed collaboration between the Central Bank of Nigeria (CBN) and the Security and Exchange Commission (SEC) is anything to go by, then operators in the crypto-currency market may soon regain access to the banking sector for their transactions. This has followed intense pressure on the financial regulatory bodies over the recent ban of the virtual money.
But that can only happen after the two regulators have come out with research-based ways of regulating the market. The CBN and the SEC had at a recent virtual lecture organised by the Association of Capital Market Academics of Nigeria (ACMAN) in Abuja agreed to collaborate and conduct research with a view to finding ways of regulating the cryptocurrency market.
Incidentally, the meeting was held less than 72 hours after the Vice President, Prof. Yemi Osinbajo called for the regulation of cryptocurrencies in the country, as against their prohibition, which he described as “killing the goose that might lay the golden eggs.”
The CBN had on February 5 ordered commercial banks and other financial institutions to close down accounts associated with cryptocurrencies. Any financial institution that breaches this directive, the CBN warned, “will attract severe regulatory sanctions.”
According to the CBN, “dealing in crypto currencies or facilitating payments for cryptocurrency exchanges is prohibited”. The apex bank later clarified that the order was not a new order, but a reminder of a directive published in 2017.
In response, banks quickly cut ties with cryptocurrency companies, such as the Binance exchange and social payments app Bundle, which in turn stopped accepting deposits.
Since July 2020, Nigerian banks have reduced the amount customers can spend abroad using debit cards as Nigeria’s economy continued to face dollar shortages due to the sharp fall in oil prices. As of now, banks limit customers to withdraw less than $100.
This restriction made some Nigerians look for a way to circumnavigate the restrictions set by financial institutions, hence, taking advantage of the digital currencies for their transactions.
Nigeria has since become the world’s second-largest Bitcoin market in volume after the United States, according to data from Paxful—a cryptocurrency trading platform and Nigerians are one of the highest down-loaders of crypto wallets.
The total value of all cryptocurrencies globally passed $1 trillion mark in January 2021. Bitcoin remains the market leader with a $676 billion market capitalisation, followed by Ethereum with a $136 billion market capitalization, while Tether, XRP, and Litecoin round up the top five.
Little wonder hundreds of Nigerians had angrily protested the ban on buying and selling of bitcoin and cryptocurrency in the country, with many taking to the social media to slam the federal government for what they considered to be a retrogressive action while others did so using other channels.
One of the loudest oppositions came from former Vice-President Atiku Abubakar, who urged the Buhari administration not to shut down the cryptocurrency business. In a statement he signed on Saturday (February 6), Atiku urged the government to regulate the sector rather than embarking on an outright shutdown.
He referenced the declining inflow of foreign capital into Nigeria from $23.9b in 2019 to $9.68b in 2020 and said the economy needs an expansion rather than a contraction.
The statement titled “We need to open up our economy, not close it” read in part: “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 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.
However, market sources said the decision of the apex bank was aimed at safeguarding the Nigerian economy from the adverse effects of unregulated cryptocurrency trading. Some analysts said dollar inflows meant for the Nigerian foreign exchange market and foreign reserves were being channeled into the cryptocurrency market
But Osinbajo, who was speaking at the Bankers Committee Vanguard in Lagos said, “There is a role for regulation here, “And it is in the place of both our monetary authorities and SEC to provide a robust regulatory regime that addresses these serious concerns without killing the goose that might lay the golden eggs.
“So it should be thoughtful and knowledge-based regulation, not prohibition,” he added.
“I fully appreciate the strong position of the CBN, SEC, and some of the anti-corruption agencies on the possible abuses of cryptocurrencies and their other well-articulated concerns, but I believe that their position should be the subject of further reflection.”
He said regulatory bodies must “act with knowledge and not fear” as the digital currencies disruption will only make “room for efficiency and progress.”
Corroborating Osinbajo’s position at the virtual lecture, Mr. Timi Agama, Head of Department, Registration, Exchanges, Market Infrastructure and Innovation Department of SEC described cryptocurrency market as an air that could currently not be caged..
He noted that cryptocurrency was a market of about two trillion dollars which could not be ignored, adding that Nigeria cannot be static while the world is moving forward.
“There is a lot of investment move into the cryptocurrency market and the tendency is that it will reduce the amount of investments in the stock market”, Agama said.
“Part of the desire of the SEC even in the future is to provide a regulatory framework that will take care of all these challenges that we have seen internationally and the entire world is grappling with in terms of cryptocurrency and digital assets.
“For us at SEC and capital market, it is something to look at, the world cannot be moving forward and we will be static, no. It is important for us to review, understand, appreciate and introduce regulations that will guide the movement of the market in this direction.”
Director, Financial Policy and Regulation Department of the CBN, Dr. Kevin Amugo, said the ban was to enable it work together with stakeholders in addressing the anonymity of the technology.
Amugo assured that the CBN would continue to develop policies that would optimise the opportunities of the financial technology industry and promote economic landscape of the country. He observed that consumer protection is a huge challenge in the cryptocurrency market as it is speculative, with no economic fundamentals driving its price.
He said, “The committee on cryptocurrency headed by the National Security Adviser with EFCC, NFIU, SEC, NAICOM and all regulators as members, is to strategize and come up with a national position not a monetary policy position.
“We have issued our initial draft but COVID-19 impeded our efforts to conclude our actions.
“Because of interests crypto has regenerated, I think it is high time we reconvened and ensure that we take a national position, so that what is issued is a national position not a CBN’s or SEC’s position.
Some cryptocurrency traders who spoke to Business Hallmark that at last, government is beginning to look at regulating the digital currency market rather than outright ban, pointing out that the issue of prohibition wouldn’t have arisen in the first place had the CBN consulted widely.
“I think the government is beginning to see the reality in the world of today. This is technology, and you cannot fight technology”, Peter Francis, a Bitcoin trader told Business Hallmark.
“Agreed that technology has its bad side, but that should not make us forget that the benefits are far more than whatever anybody can say against it.”
Another operator, Adeyemi Idowu said, “I knew from day one that banning of cryptocurrencies was a policy error that would be corrected anytime soon. How can a country choose to deny its citizens access to such a huge market with numerous opportunities?“ he queried.
Toeing the line of China
In 2013, the People’s Bank of China declared war on cryptocurrencies and forbade them to be accepted as money, yet had nothing against individuals buying them. But in 2014, the ban also affected the sale of cryptocurrency. Findings show that not only the Chinese economy but also the cryptocurrency ecosystem as a whole lost a lot from such decisions.
However, China not only later understood the prospects that cryptocurrencies and blockchain open up for the state in the global financial arena but even prepared to launch its own national cryptocurrency — crypto-yuan, which experts predict is such a great future that it can compete with the US dollar.