The Central Bank of Nigeria (CBN) has justified the ban to banks from transacting in cryptocurrencies insisting that the currencies fuel illicit financial flows, terrorism and drugs purchase.
A statement by the CBN’s spokesman, Osita Nwanisobi, the Ag. Director, Corporate Communications, CBN said the decision of the CBN is not in anyway negatively impacting fintechs as there are other robust platforms they can thrive.
READ: The Undertones Of Nigeria’s Cryptophobia
The CBN argued that, in light of the fact that cryptocurrencies are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria.
In effect, it said “the use of cryptocurrencies in Nigeria are a direct contravention of existing law. It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and cryptocurrencies. As the names imply, while Central Banks can issue Digital Currencies, cryptocurrencies are issued by unknown and unregulated entities”
The CBN further argued that, the very name and nature of “cryptocurrencies” suggests that its patrons and users value anonymity, obscurity, and concealment.
“The question that one may need to ask therefore is, why any entity would disguise its transactions if they were legal” the CBN wondered, adding that “it is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.”
It noted that “many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities”.
The CBN further stated in the statement that “the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known. They have also been recent reports that cryptocurrencies have been used to finance terror plots, further damaging its image as a legitimate means of exchange.”
“More also, repeated and recent evidence now suggests that some cryptocurrencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices” it further stated.
The CBN further explained that: “Because the total number of Bitcoins that would ever be issued is fixed (only 21 million will ever be created), new issuances are predetermined at a gradually decelerating pace. This limited supply has created a perverse incentive that encourages users to stockpile them in the hope that their prices rise. Unfortunately, with a conglomeration of desperate, disparate, and unregulated actors comes unprecedented price volatility that have threatened many sophisticated financial systems.”
It noted that, “the price of ether, one of the largest cryptocurrencies in the world, fell from $320 to US$0.10 in June 2017. The price of Bitcoins has also suffered similar volatilities thus making them unreliable” the apex bank said.
The bank explained further that, “given that unlike Fiat money, which is accompanied by full faith and comfort of a country or Central Bank, cryptocurrencies do not have any intrinsic value and do not generate returns by themselves. When one buys a stock, say of a conglomerate in the Nigeria Stock Exchange, its price reflects the activity and production of that conglomerate and the value people place on their goods and/or services. This price may rise as the conglomerate produces better goods/services and probably gains greater market share. The reverse would be true if the conglomerate does not innovate to improve the quality of its goods/services. In other words, the price of that stock reflects market fundamentals. In contrast, cryptocurrencies do not have fundamentals and would never have fundamentals. Investors only buy in the hope that its use and acceptability will rise, thereby pushing up its demand and price”.
At this juncture, the statement noted that “the CBN would like to assert that our actions are not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.”
“To the contrary, the Nigerian payment system has evolved significantly over the last decade, leapfrogging many of its counterparts in emerging, frontier and advanced economies propelled by reforms driven by the CBN. This is evident from the variety of participants, products, channels, cutting-edge technology in the payments system.”
“It is also validated by the astronomical growth of volume/value of transactions and the fact that Nigeria is an investment destination of choice for international financial technology companies because of CBN’s policies that have created an enabling investment environment in the payments system,” it noted.
