The Central Bank of Nigeria’s directive BSD/DIR/GEN/LAB/14/001 prohibiting commercial banks and other financial institutions from transacting and allowing payments to be made through their platforms has thrown the whole country into a frenzy. While the CBN justified the controversial directive by alluding to the volatility of crypto-currencies, many Nigerians have accused the apex financial regulatory body of being backward and not in tune with technological trends.
The question begging for answers remains, what are cryptocurrencies? What are the regulatory frameworks of cryptocurrencies in Nigeria? What are the implications of the new CBN directive on traders, fintech, and other stakeholders?
WHAT ARE CRYPTOCURRENCIES?
Think of cryptocurrencies as your everyday fiat currencies that are issued by the central banks of countries to serve as legal tender, the major difference is that while fiat currency is tangible and issued by the governments through their central banks, cryptocurrencies are intangible digital currencies powered by the blockchain technology.
Blockchain technology is a decentralized digital ledger spread across several computers that manage and records transaction.
It is worthy of note that According to CoinMarketCap.com, about 6,700 different cryptocurrencies are traded publicly. Analysts have also indicated that more cryptocurrencies will be created within the next decade.
REGULATORY FRAMEWORK FOR CRYPTOCURRENCY IN NIGERIA.
The saying that law usually lags behind the technology is more applicable to Nigeria, even though she traded the second-largest volume of bitcoin on the popular worldwide bitcoin marketplace Paxful and the fact that her bitcoin trade value has been increasing at the rate of 19% since 2017, Nigeria has no robust regulatory framework for cryptocurrency. This is a strong testament to the low quality of the caliber of people occupying the national assembly that is saddled with the constitutional responsibility of making rules and regulations for the country.
It took the ingenuity of the Securities and Exchange Commission to issue a prima facie regulation on cryptocurrencies pursuant to the powers granted to it by the Investment and Securities Act. By the SEC regulation dated September 14, 2020, every crypto asset will be treated as securities, the regulation prohibits stakeholders from dealing in cryptocurrencies without getting tacit approval from the commission.
It is worthy of note that cryptocurrencies transcend securities, it can be used as legal tender while securities need to be converted to fiat currency to be so used. This in itself is the major conflict between the central bank of Nigeria and the securities and exchange commission, the CBN contends that it is the only body saddled with the responsibility of regulating legal tenders by law within the territory of Nigeria.
We humbly submit that either the investment and securities Act, the CBN Act or the Banks and Other Financial Institution Act (BOFIA) be amended to set the records straight as was done in Estonia where the Money Laundering Act was amended to accommodate cryptocurrencies or better still a new legal regime that will specifically target the peculiarities of cryptocurrency should be enacted.
THE PROBLEM WITH CRYPTOCURRENCY.
Anonymity and security are the strength and weaknesses of cryptocurrency. Supposing two different kidnappers opted to collect ransom differently, while one opted for a direct bank transfer, the other opted to be paid through cryptocurrency, the former would be easily tracked while the latter will be difficult to track.
The anonymity of cryptocurrency has made it the ideal tool to launder money across several countries, buy illicit drugs in the dark market, fund terrorism without the prying eyes of the Central Banks.
The fact that cryptocurrencies are also not issued by the central banks, bank accounts are not required to transact them and it can affect the money supply in the economy is problematic. The CBN justifiably feels that it is eroding its powers making it a threat to the status quo.
This threat was brought to the fore during the recent End SARS protest where funds were raised using cryptocurrency to bypass governmental restrictions aimed at nipping the protest which may have skyrocket into a revolution in the bud.
IMPLICATION OF THE CBN DIRECTIVE ON TRADERS, FINTECHS, AND OTHER TRADERS
The new CBN directive is expected to affect the demand for cryptocurrency in the Nigerian market, daily traders will encounter difficulties in processing payment, and fintech companies like Luno and Paxful will lose their share of commission on crypto transactions.
With a relatively low inflow of foreign direct investment because of unstable governmental policies, a weak currency, double-digit inflation rate, huge infrastructural deficit among other issues into the country, Nigeria should be thinking of creative ways to attract fintech and the investment they bring and not discourage them from entering an already troubled economy reputed to be one of the poverty capitals of the world.
We humbly submit that traders and other cryptocurrency stakeholders can bypass the recent CBN directive by accepting payments for crypto transactions through third-party mediums like PayPal which unfortunately is difficult to access in Nigeria. We remain hopeful that Fintech companies will inculcate new payment methods to bypass the unfortunate directive on their platforms.
While it is true that cryptocurrency is volatile, prone to fraud, and has been banned in many countries, the Nigerian government should not throw the child away with the bathing water. In line with the massive benefits that could be derived from cryptocurrencies by an already troubled economy, a robust regulatory framework and regime is all that is needed to protect the citizens from its disadvantages.
There is no problem arising from cryptocurrencies that could not be checked as has been done in several countries. It should be noted that dealing in foreign exchange, shares and other securities are also prone to fraud and are highly volatile, should the government now place an outright ban on them? Your guess is as good as mine.