Several parties expressed alarm when the Central Bank of Nigeria (CBN) advised banks and other financial institutions to stop transacting in cryptocurrencies and enabling payment for cryptocurrency exchanges in February.
The apex bank directed banks and other financial institutions to identify and shut the accounts of persons or businesses that transact in bitcoin or run cryptocurrency exchanges in a document dated February 5.
The memo came after the CBN warned in 2017 that cryptocurrencies were not legal money and that investors were vulnerable. It stated that cryptocurrency transactions are unregulated and vulnerable to financial crimes.
Despite assurances from the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, that the instruction would not hinder the development of a technology-driven payment system in Nigeria, numerous players fought it.
They encouraged the central bank to reconsider the prohibition and consider digital currencies as a tool for economic development.
Emefiele had previously stated that the Nigerian payment system had advanced greatly over the previous decade, owing to CBN-led reforms, and that cryptocurrencies had no place in the Nigerian monetary system.
After China implemented new limitations in May, the price of Bitcoin, the most popular cryptocurrency, dropped dramatically. China had previously prohibited banks and payment companies from offering services connected to cryptocurrency transactions, as well as cautioned investors against speculative cryptocurrency trading.
In order to combat money laundering, crypto-currency trading has been outlawed in China since 2019, yet people were still able to deal in currencies like Bitcoin online.
Stakeholders have also accused Mr. Elon Musk, the CEO of Tesla, an automaker, of contributing to the decline in the value of cryptocurrencies.
Musk amended his decision, citing the environmental effects of mining new currencies, after his electric vehicle firm invested 1.5 billion dollars in Bitcoin in February and assured consumers that he would accept Bitcoin as payment for Tesla cars.
Bitcoin also dropped by more than 10% as a result of this. Other digital currencies, such as Ether, which powers the Ethereum blockchain network, and Dogecoin, have also seen their value drop.
Bitcoin soared beyond 30,000 dollars earlier this week after Elon Musk indicated Tesla would “most likely” resume accepting it as payment.
The significant risk associated with cryptocurrencies was amplified by its value instability and vulnerability to policy decisions made by both state and non-state actors. It also backed up the CBN’s decision to halt its transactions in the Nigerian banking sector.
Many nations have yet to come up with effective and efficient ways to regulate the cryptocurrency industry, which has been viewed as a money laundering haven and a terrorist tool.
Due to the anonymous mode of transactions of these currencies, the world’s biggest criminal groups seem to have made them convenient and global source for laundering money.
Meanwhile, the CBN has assured Nigerians that it would soon create its own, more secure digital currency.
Emefiele said this while addressing journalists after the last meeting of the Monetary Policy Committee (MPC) in May.
He said that the idea of a digital currency would soon become a reality in the country, and that the central bank had already set up a committee, which is working on the concept.
Mrs Rakiya Muhammed, Director of the CBN’s Information Technology Department, stated at the conclusion of the meeting that the Bank has been researching central bank digital currencies since 2017 and may perform a proof of concept by the end of the year.
“At the moment, there are two types of currency: notes and coins. The CBN’s digital currency will serve as a third form of payment in addition to cash. Rather of carrying cash, digital currency stores funds in a mobile phone, she explained.
She explained that the proposed CBN digital currency will increase the inclusion drive, lower the cost of cash management, and enable innovations in the nation’s financial system, citing a recent report indicating Nigeria was at roughly 60% financial inclusion.
With an 80 percent aim by the end of the year, the director emphasized that such a measure was necessary to increase the nation’s financial inclusion rate.
She went on to say that a central governance structure would be established to address all associated concerns, with the goal of providing the greatest technology for the digital currency to the Nigerian people.
Also, Director General of Securities and Exchange Commission (SEC), Lamido Yuguda, revealed that SEC was working with the CBN for a better understanding and regulation of cryptocurrencies in the country.
Analysts expressed confidence that a collaborative effort by the CBN and SEC would go a long way to deliver a safe digital currency platform in the country.
As the frailties and instability in cryptocurrency investment continue to manifest across the globe, and as more countries continue to take more stringent steps to restrict and regulate its transactions, stakeholders are commending the CBN for having the foresight to blaze the trail in identifying inherent dangers in cryptocurrency and restricting its transactions.
The CBN’s action aligns with the views of policymakers throughout the world, who have been discussing central banks establishing their own digital currencies, known as Central Bank Digital Currencies (CBDCs), that would be available to the general public rather than just regulated commercial banks.
Analysts think that a single-network-managed national digital currency may allow money to change hands almost rapidly, similar to crypto transactions, but in a more safe business environment.