The CBN issued two letters over the weekend prohibiting banks from dealing in cryptocurrencies and clarifying that this rule had been in place since the start of 2017
On Friday, the Central Bank of Nigeria (CBN) issued a letter to the country’s financial institutions stating that “… dealing in crypto currencies or facilitating payments for cryptocurrency exchanges is prohibited.”
The letter also directed them to “… identify persons and/or entities transacting in or operating crypto currency exchanges within their systems and ensure that such accounts are closed immediately”, with a warning that failing to comply would result in severe regulatory sanctions.
Cryptocurrencies rose in popularity in Nigeria throughout 2020, fuelled by the pandemic and CBN’s devaluation of the naira. Young Nigerians in particular turned to digital currencies to protect their savings from extortion by the special anti-robbery squad (SARS), as well as to raise funds for protests.
In fact, Google trend data shows that Nigeria has been searching ‘bitcoin’ more than any other country over the past 12 months, and Quartz Africa revealed at the end of last year that Nigeria had become the second largest Bitcoin market by volume behind the US.
Following CBN’s directive, Binance Nigeria announced they were suspending naira deposits, resulting in a lot of backlash against CBN, with many suggesting the ban is a step backwards and will drive many Nigerians to cut out financial institutions entirely by turning to peer to peer exchanges instead.
After reactions to the Friday letter, CBN issued a second five page letter on Sunday justifying their position. The second letter clarified that the first letter did not constitute a change but was simply a reiteration of restrictions outlined in an earlier circular dated 12 January 2017.
CBN also claimed their position was not an outlier by listing 16 other countries that had restricted use of cryptocurrencies and suggesting they carry significant risks and are used for criminal activities such as money laundering and terrorism financing.
The letter goes on to detail various objections to cryptocurrencies from around the world, such as Warren Buffet’s labelling of them as “rat poison squared”, and Governor of the Bank of England, Andrew Bailey’s, concerns about their extreme price volatility.
CBN concluded by asserting that Nigeria will still be a leader in FinTech development by virtue of their payment system and initiatives including regulatory sandbox and open banking principles.