Nigeria’s Cryptocurrency problem does have the CBN scrambling in recent times as it has been sanctioning banks in an attempt to prevent dealing in cryptocurrencies, but can this succeed in a country where the local currency is losing value at an alarming rate?
In April, the Central Bank sanctioned about six commercial banks for a total of N1.3billion for violating its directive against facilitating transactions in cryptocurrency transactions. Since then, the responsibility has been on the banks to detect accounts used to trade in cryptocurrencies.
The Origin of the Crypto Dilemma!
The crypto dilemma started as far back as 2016 when the Nigerian economy was plunged into recession for the first time in 25 years resulting from the fall in oil prices. The economy fell into a tailspin as people began to see their savings getting eroded by the effect of inflation and the currency devaluation. Thus, many sought the safety of digital currencies, offshore stocks, and bonds.
By 2019, Nigeria had become Africa’s biggest cryptocurrency market, and its citizens were the biggest holders of digital currencies outside the US. This became a major source of concern for the country’s monetary authorities as to the acquisition of offshore assets exerted greater pressure on the exchange rate.
Following the breakout of the COVID-19 pandemic in 2020, the economic situation deteriorated even worse with more Nigerians turning into digital currencies and other offshore investments, forcing the naira to decline even more.
However, the CBN intervened last year February last year by prohibiting banks from facilitating trading in digital currencies. It also clamped down on some firms enabling trading in offshore stocks and bonds, accusing them of exchange rate manipulation, as it defended itself before the lawmakers as its show of concern for security and money-laundering.
Crypto’s threat to the monetary authorities
The holdings of Nigerians in bitcoin and other digital coins had become a threat to monetary policy and the latest slap on the wrist for the banks adds to the growing signs that Nigeria’s crypto problem isn’t going away soon.
Although the authorities have taken several efforts to suppress the trade in cryptocurrencies by freezing accounts, implementing other sanctions, and introducing the e-Naira. However, these efforts have resulted in futility, and instead, Nigerians have grown greater confidence in the crypto market as the Nigeria e-Naira has not provided a safe haven for savings or investments.
Nonetheless, with the cryptocurrency market experiencing a bloody decline at the moment, analysts predict that the cryptocurrency market in coming years will challenge traditional banking in ways we cannot imagine, including reserve banking. Therefore, we have to get ready for the seismic shift.
In addition, since the CBN has decided to wage an unwinnable war against the crypto investors, the trend has been to diversify into crypto derivatives that can be liquidated into so-called stable coins. Such stable coins as; Tether, and the newly emerging asset classes such as Non-Fungible Tokens (NFTs) and Decentralised Finance (DeFi), making the task of dislodging them even harder for the authorities.
The CBN in January 2017 mentioned that digital currencies such as bitcoin, litecoin, and others were largely used in terrorism financing and money laundering, considering the anonymity of virtual transactions.
Also, in February 2018, the CBN warned people who invest in cryptocurrencies that they did so at their own risk because they were not protected by the law.
In February 2021, the CBN released a directive contained in the CBN Update bulletin, ordering commercial banks to close all operating cryptocurrency accounts.
On the 6th of April, the CBN sanctioned about six commercial banks for a total of N1.3 billion for violating its directives of being involved in cryptocurrency transactions.
The banks included: Access Bank which was fined about N500m; FCMB fined about N400m; Stanbic IBTC with N200m; United Bank for Africa and Wema Bank, fined about N100m each and Fidelity Bank, fined N14.28m.