Hawkish CBN joins sceptical global central bankers against crypto trading

 By Charles Abuede

• Hawkish position puzzles analysts
• Say global banks, JP Morgan, Morgan Stanley, Citibank already in on crypto
• Stakeholders say decision motivated to thwart SEC’s move to build regulatory framework for crypto trading

The Central Bank of Nigeria (CBN) has decided to go hawkish in the controversial global disagreement between some central bankers and market participants over what status to confer on digital currency trading and exchanges. On Friday, it joined forces with a swathe of these central bankers who have remained largely sceptical about the invisible money that has swept through the world, except perhaps in Russia and North Korea, where a dictatorship holds sway, in the often unspoken war against what some major global financial institutions and burgeoning online marketplace and e-commerce platforms have already embraced in their daily trades and transactions – crypto currency.

The move by the apex bank, however, has already sparked outrage and it is being questioned by many with reactions from concerned stakeholders trailing the decision which has left many wondering the overriding motivation behind such a decision without broad based consultation.

In a stern circular it sent out last Friday, the apex bank warned all regulated financial and non-financial institutions in the country against the exchange of virtual currencies. It went further to direct all regulated institutions to identify individuals transacting or operating the cryptocurrency exchange within their systems and also have the accounts of such individuals closed with immediate effect.

The CBN name-shamed virtual currencies such as Ripples, Bitcoin, Monero, Litecoin, Dogecoin, Onecoin, amongst others, to be the ones under reference and said they are not legal tenders in Nigeria, noting that transactions in the currency, such as crypto, is largely untraceable and anonymous, resulting in its being susceptible to abuse by criminals, especially in money laundering and financing of terrorism.

Business A.M. reached out to the markets to get analysts to speak on the development and a number of them have expressed concern about the lack of detail in the circular, especially because the apex bank appears not to think that the markets and Nigerians need to get fuller briefing beyond just handing down a warning circular.

Uche Uwaleke, a professor of capital markets at the Nasarawa States University and, also, a fellow of the Institute of Chartered Accountants of Nigeria (ICAN), in his commentary note to Business A.M. said he believed the CBN consulted relevant authorities and stakeholders, including the Bankers’ Committee.

“Given the weighty nature of the directive, I want to believe that the CBN must have consulted relevant stakeholders, including the Bankers Committee before taking the decision. I am inclined to believe that it was well thought through and not a unilateral decision. The fact is that what the CBN could see in a squatting position, many cannot see standing. So, I think the directive should be seen in the light of this fact that the CBN may have information which may not be available to the public.

“In my view, the flaw in that circular is that it did not state the reason why the apex bank is taking that course of action. It should have done so especially if it’s to do with fraudulent activities and threats to financial system stability,” the professor stated.

But not so for Segun Awosanya, a human rights activist, who, via his Twitter handle, over the weekend, described the move by the apex bank as ill-advised and predicted that the decision won’t end well following the ill-advice given to the monetary authority.

“This is yet another developing horror story in our dying society. The government through the apex 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,” Awosanya wrote in his twit.

Recall that in 2017 the CBN had in a circular on virtual currency operations in Nigeria stated that transactions in the currency such as crypto are largely untraceable and anonymous and as such are susceptible to abuse by criminals, especially in money laundering and financing of terrorism. The banking regulator thereafter directed all banks to ensure that they do not hold, use, trade or transact in virtual currencies (VCs); ensure that customers that are virtual currency exchangers have controls that enable the compliance to customer identification, verification and transaction monitoring requirements and also discontinue any relationship with exchangers and customers where the controls put in place by the virtual currency exchangers are unsatisfactory.

On the flipside to the apex bank’s directive; in a statement by Nigeria’s Security and Exchange Commission (SEC), released in September 2020, it stated that all crypto assets fall under its remit and therefore, that it was formalizing the digital currency as securities as it began ways to develop laws that could formalize the virtual currency into an asset. Months later, analysts say it appears that after the declaration by SEC, Nigeria’s Central Bank has chosen to act contrary to SEC’s methodical approach to a matter requiring high level understanding of regulatory provisioning, by moving in with restrictive policies that will result in more worries for Nigerian start-ups that trade in crypto, as well as the investors who, against all odds, invested in the country, despite the high risk involved in doing business in Nigeria.

At the weekend, a group calling itself BlockchainAlliance issued a statement in Abuja calling on the CBN to reverse the decision.

It described the CBN circular as a retrogressive and a tacit sabotage of efforts of the Buhari presidency for Nigeria to lead Africa in the digital currency race.

“The Central Bank of Nigeria (CBN) should reverse its ban of cyrptocurrency and instead support on-going efforts by the Security and Exchange Commission (SEC) to create a regulatory framework,” it said

It added that the CBN action was “a demonstration of ignorance of how block chain technology works, how no country can stop it and how great nations of the world are already falling on each other to embrace it.

“The value of just one Cryptocurrency exchange exceeds entire value of Nigerian Stock Exchange. This is a multi-trillion industry that transcends national governments. We suspect somewhere some fifth columnists from within the administration may be scheming to sabotage the Buhari Presidency which has been very adaptive to new ideas and innovations.

“Let us repeat that bitcoin cannot be banned by any country because the block chain technology behind it is used in a decentralized way so that no single person or group has control—rather, all users collectively retain control. Decentralized blockchains are immutable,” the group said in the statement signed by three zonal coordinators in the persons of Abibat Ibrahim, coordinator-Northern Zone; James Kudaisi, coordinator, Western Zone; and Elias Chukwudi, coordinator, Eastern Zone.

Data accessed on Statista shows that Nigeria is the third-largest market in the world where crypto, such as Bitcoin, is traded with transaction value worth $400.1 million after the United States and Russia with $1.5 billion and $421.4 million respectively. Data gathered by Investopedia and accessed by Business A.M. shows that top countries such as the US, Canada, Australia, Finland, Belgium, the UK, India and Germany have allowed for the trading of Bitcoin. However, China and Russia, as well as Nigeria, still lead in the rank of countries not yet opened to the virtual currency.

Nevertheless, several major global financial institutions around the world such as JP Morgan Chase, the National Bank of Canada, Goldman Sachs, Morgan Stanley, amongst others, are already adopting the use of virtual or digital currencies for their day to day transactions. Also, major e-commerce platforms and challenger banks are adopting and accepting digitalized payment systems which allow for the exchanges in buying and selling.

It can be recalled that not too long ago at some point, China, which was widely seen as the home of Crypto currencies had to ban trading in bitcoins.

But in spite of the decision by Nigeria’s Central bank, analysts believe this measure is only temporary. They advise that given that crypto currencies have come to stay, the CBN and the SEC should come up with sound regulatory framework for crypto asset trading in Nigeria.