The CBN explained in detail its directive to banks to desist from transacting in and with entities dealing in cryptocurrencies.
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The Central Bank of Nigeria, in a press release dated, the 7th of February 2021 has explained in detail the reason for its directive to Deposit Money Banks (DMBs) and other financial institutions to desist from transacting in and with entities dealing in cryptocurrencies.
Issuing a press statement, the CBN said it felt the need to provide further justifications about its position to the general public.
The press statement began with the CBN detailing the nature of cryptocurrencies stating that “Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation. While there are a number of cryptocurrencies now in circulation, Bitcoin was the first to be introduced in 2009, and now accounts for about 68 percent of all cryptocurrencies.”
Even though the circular of February 5 has sparked a lot of reactions, the CBN makes it known that its recent restriction is not new, but only a reminder of the earlier circular that was dated January 2017.
“As regards our recent policy pronouncement, it is important to clarify that the CBN circular of February 5, 2021, did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in cryptocurrencies,” it stated.
The apex bank further stated that the prohibition of cryptos was not exclusive to Nigeria, as certain levels of restrictions on financial institutions facilitating crypto transactions have been applied in several other countries around the world.
“They have all made similar pronouncements based on the significant risks that transacting in cryptocurrencies portend-risk of loss of investments, money laundering, terrorism financing, illicit fund flows, and criminal activities. China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal, and Cambodia have all placed a certain level of restrictions on financial institutions facilitating cryptocurrency transactions.
“This is far greater volatility than is found with normal currencies. Let us now turn to some of the justifications for CBN’s recent policy reminder. A perfunctory reflection on the definition of cryptocurrencies can already reveal several problems.”
The Nigerian leading financial regulator also spoke on the fact that some of these cryptos are issued by unregulated and unlicensed entities which begs the question of legality. It also claimed that cryptocurrencies have been used to finance several illegal activities including terrorism and money laundering.
“The question that one may need to ask therefore is, why any entity would disguise its transactions if they were legal. 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.”
The CBN stated that a significant amount of people used it for speculative purposes rather than payment, citing the flagship crypto model as an example.
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“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.
“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.
The Bank concluded by re-emphasising its responsibility to protect investors from a high probability of losses that may arise from dealing in cryptos. The CBN said it would continue to educate Nigerians on the disadvantages of cryptos in the financial system.
“Due to the fact that cryptocurrencies are largely speculative, anonymous, and untraceable, they are increasingly being used for money laundering, terrorism financing, and other criminal activities. Small retail and unsophisticated investors also face a high probability of loss due to the high volatility of the investments in recent times.
“In light of these realities and analyses, the CBN has no comfort in cryptocurrencies at this time and will continue to do all within its regulatory powers to educate Nigerians to desist from their use and protect our financial system from the activities of fraudsters.”
What you should know
The CBN, a few days ago issued a circular prohibiting banks and other financial institutions from carrying out transactions in cryptocurrencies or facilitating payments for crypto exchanges.
The CBN’s directive has since gotten very harsh reactions on social media with many condemning the policy as a deliberate attempt by the government to impoverish young Nigerians who have been able to create wealth for themselves through crypto trading.
Interestingly, Nigeria along with other countries ranked as the worst countries to start a career do not wholly accept or legally recognize cryptocurrency and other digital assets.
See the CBN circular below:
CBN instruct banks to close accounts related to Crypto
Crypto ban: CBN rule does not criminalize cryptocurrencies - Moghalu
Binance, Quidax, Buycoins Africa, Bundle obey CBN's crypto ban
RELATED TOPICS:BITCOINCBNCENTRAL BANK OF NIGERIACRYPTOCURRENCYCRYPTOCURRENCY NEWSFEATURED
Olumide Adesina
Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment trading. Follow Olumide on Twitter @tokunboadesina or email olumide.adesina@nairametrics.com. He is a Member of the Chartered Financial Analyst Society.11 COMMENTS
BUSINESSCrypto ban: CBN rule does not criminalize cryptocurrencies – Moghalu
Mr Moghalu has stated that CBN’s ruling does not criminalize the use and trade of cryptocurrencies in Nigeria.
Published 4 hours agoon February 8, 2021By William Ukpe Why Okonjo-Iweala should win the WTO DG role- Prof. Moghalu
Former Deputy Governor of the Central Bank of Nigeria, Kingsley Moghalu, has said that the CBN ruling on the prohibition of crypto operations does not criminalize the use and trade of cryptocurrencies in Nigeria. He also added that banning cryptos might have not been the wisest decision by the CBN.
Moghalu disclosed this in an interview with Channels TV on Sunday evening.
On criminalizing of crypto
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“I do not interpret it as criminalising crypto; I interpret it as a directive to financial institutions under the control of the CBN not to deal with these cryptocurrencies,” he said.
He added that the directive was targeted at exchanges of cryptocurrencies. According to Moghalu, it did not “criminalize individuals transacting in exchanging based on crypto, although it becomes more difficult, if the exchanges are made suspect by the CBN.”
“It’s a bit of a grey area, but the CBN said it’s not legal tender; but they don’t have to tell me what we can exchange for value. Therefore, it does not criminalise cryptocurrency,” he added.
On whether the ban was a wise decision
Moghalu said that although the CBN had previously put out a circular as far back as 2017, warning that cryptos weren’t legal tender, “the SEC recognizes crypto as a financial asset and in September they said they were going to put out a regulatory framework for that.”
He stated that Bitcoin and other cryptos, are known as ‘freedom money’, as crypto value is not determined by the value of legal tender currencies.
“We need to understand that crypto doesn’t have an underlying value, because unlike a normal currency, which is backed by foreign reserves, productive nature of the country that owns the currencies and other factors… that’s not what happens with cryptocurrencies. But we live in a world of innovation and cryptocurrencies bypass central banks.
“Nigeria is the second biggest user of bitcoin and during the endSARS protests, these cryptocurrencies were used to support the protest when the CBN blocked accounts.”
He added that the use of crypto transcended aspects from political to business opportunities for young Nigerians and banning its legal use in banking institutions might not have been the wisest decision.
“There is the financial aspect, there is the political aspect, there is the private economic aspect of it and the aspect of business opportunity for young Nigerians who trade these instruments.
“The CBN directive is legal, but was it the wisest way to approach the risk of cryptocurrencies? I am not sure about that. That is why I was worried about this response from the central bank,” he added.
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In case you missed it
The CBN, a few days ago issued a circular prohibiting banks and other financial institutions from carrying out transactions in cryptocurrencies or facilitating payments for crypto exchanges.
The CBN’s directive has since gotten very harsh reactions on social media with many condemning the policy as a deliberate attempt by the government to impoverish young Nigerians who have been able to create wealth for themselves through crypto trading.
The CBN released a press statement further justifying its position to the general public and clearly stating that cryptos are issued by unregulated and unlicensed entities which begs the question of legality. It also claimed that cryptocurrencies have been used to finance several illegal activities including terrorism and money laundering.
CONTINUE READINGCRYPTOCURRENCYWhy Nigerian Crypto community is angry with CBN
Crypto pundits believe the action taken by the CBN was rather detrimental to the growing industry.
Published 5 hours agoon February 8, 2021By Olumide Adesina
The Nigerian crypto community recently received a shocker when CBN released a circular warning financial institutions to desist from dealing or facilitating payments for cryptocurrency exchanges.
Many young Nigerians who engage in crypto are obviously unhappy with such a directive knowing very well, the influence the apex bank has on Africa’s fast-growing financial ecosystem.
Ever since the circular got leaked to the public, the Fintech industry, political leaders have been furious at such a decision made by the Nigerian apex bank, as Bitcoin and CBN were among the top trends on social media upon the release of the circular.
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READ: CBN instruct banks to close accounts related to Crypto
Benedict Murray-Bruce, a business magnate and a former senator wrote via his Twitter handle, questioning why such a decision was made so hurriedly.
“I thought its universal knowledge that decisions or policies regarding finance or the economy should never be hasty? Crypto,” Murray-Bruce queried.
Some crypto pundits also believe the approach taken by the CBN was rather discouraging to the growing industry.
Buttressing such sentiments is Chimezie Chuta, Founder/Coordinator, Blockchain Nigeria User Group, in an exclusive interview with Nairametics where he revealed his disappointment, stating the effect the CBN’s directive could have on Africa’s largest economy
READ: How social media reacted to the CBN crypto ban
Chuta said, “Thousands of young Nigerians are currently earning a decent living to put themselves through school via crypto trading. Many are sustaining their families and loved ones via crypto trading. What about the thousands of new businesses and jobs created by crypto innovation? What about the revenue that is flowing into the country as a result of the huge volume of trades being carried out on major exchanges?
Buchi Okoro, CEO and Co-founder of Quidax, Nigeria’s largest crypto exchange had this to say; “CBN’s letter was like getting a spanking from your parents for good behavior. But out of respect you take it in stride and keep working harder.”
The recent CBN directive has already strengthened fears among a growing number of Nigerian users that include millennial and small business operators that use such digital assets for payments and hedge against fiat inflation.
READ: Atiku says crypto prohibition will restrict inflow of capital into Nigeria
Rume Ophi, Partner and Brand Strategist, Vorem Nigeria spoke on the effect such a directive will have on a significant number of Nigerians, particularly those new to cryptocurrency. He said;
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“Newbies are going to be scared of losing their funds because they feel bitcoin and other cryptos can be destroyed by government, which is not possible. Those that have invested in exchange platforms will feel terrible with such hostile directive, thereby preventing them from serving their customers.”
Adding more weight on the matter is Nigeria’s former Vice President, Atiku Abubakar, whom via his Twitter handle advised fiscal stakeholders to not tightening Africa’s largest economy amid Nigeria’s high youth unemployment;
“We Need to Open Up Our Economy, Not Close It.
“The number one challenge facing Nigeria is youth unemployment. In fact, it is not a challenge, it is an emergency. It affects our economy and is exacerbating insecurity in the nation.”
Corroborating on such bias, Adebayo Juwon, African Lead at a leading crypto exchange FTX said;
“The stiffness of the Nigerian government on crypto adoption has impacts on the growing industry of digital payment, but this is good for innovation, isn’t it? Decentralization of finance has endless possibilities; therefore, it is only rational for the government to get involved when they can. Innovation can’t be stopped; it can only be delayed.
“It is important to clarify that CBN didn’t ban crypto in Nigeria; they simply asked Nigerian financial institutions not to process crypto payments pending regulation.”
READ: Binance, Quidax, Buycoins Africa, Bundle obey CBN’s crypto ban
It’s critical to note that the CBN’s circular does not criminalize crypto, and it’s within the apex bank’s statutory powers to protect Nigeria’s financial system, however, some crypto experts are of the opinion that such exclusion to its financial ecosystem will put Nigeria at a huge disadvantage in the Fintech space.
According to some media sources seen by Nairametrics, CBN was earlier warned by the United States’ Federal Bureau of Investigation, (FBI), on the activities of criminals using crypto assets to bring into the country hundreds of millions of US Dollars illegally obtained from emerged markets.
However, data retrieved from Chainalysis revealed that the percentage of illicit crypto activity associated with scams isn’t as high in Africa as in other regions around the world. Illicit cryptocurrency activity accounted for just 2% of the region’s roughly $16 billion trading volume from July 2019 to June 2020. Scams accounted for 55% of this low-level illicit activity.
READ: Nigeria’s cryptocurrency ban: A legal analysis
To justify its directive, the CBN issued a statement insisting that these cryptos are issued by unregulated and unlicensed entities which begs the question of legality. It also claimed that cryptocurrencies have been used to finance several illegal activities including terrorism and money laundering.
Elelu-Bashir Mohammed, Nigeria’s Community Manager at Crypto.com in a phone chat interview with Nairametrics gave valuable suggestions on what the Nigerian crypto community expects from the Nigerian apex bank;
“I believe it’s time for the Nigerian government to start looking at ways Nigeria can benefit from the robust tech blockchain is offering such as voting mechanisms, IOT, supply chain, etc. The CBN should also invite the necessary stakeholders in the crypto and blockchain space and create a regulatory framework for financial institutions willing to extend their services to crypto-related businesses,” Mohammed said.
In addition, Juwon laid bare his thoughts on why Nigerian monetary stakeholders shouldn’t see Crypto as a threat to the current financial system, but rather embrace the ever-changing financial instrument as seen in emerged markets;
“The tech/crypto community in several countries receives tremendous support from their government. Blockchain Council reported that Australia, China, Dubai among other developed nations is making precise moves towards the adoption of blockchain and accepting crypto payment. According to Forbes, payments giant PayPal will allow its 346 million users to buy and spend bitcoin and a handful of other major cryptocurrencies,” Juwon said.
Rotimi Ogunwede, the Chief Marketing Officer of Patricia, a fast-growing crypto payment company, in an exclusive interview with Nairametrics, explained viable options Nigerians would have to go through to process their crypto transactions amid the regulatory restrictions in play;
“The new CBN policy will only encourage P2P trades which are even more unregulated unlike what Patricia has where we have KYC done on all users to ascertain their identity before any trade or exchange happens. We even go as far as linking users’ accounts to their individual BVN, to ensure transparency,” Ogunwede said.
Bottom Line
Financial experts further conclude such a move made by the financial regulator will distort the dynamics of the Crypto market in Africa, on the bias that Nigeria is a key player in the Crypto-verse and home to many leading Crypto service providers providing employment and synergy in Nigeria’s Fintech space.
With that said, the CBN’s recent directive on crypto dealings makes it imperative for the Nigerian Crypto community and financial regulators to seek a unifying approach that would be beneficial for Nigeria’s economy by increasingly educating both the regulators and the public on the leverage it brings to Africa’s largest economy.
CRYPTOCURRENCYNaira gains at NAFEX window as Oil prices approach $60 mark
The exchange rate between the naira and the dollar appreciated closing at N396.17/$1 at the NAFEX (I&E Window).
Published 5 hours agoon February 8, 2021 Dollar, Exchange rate, FOREX, NAFEX market turnover drop by 59%, Naira crashes to N470/$1 as currency uncertainty worsens
On February 5, 2021, the exchange rate between the naira and the dollar appreciated closing at N396.17/$1 at the NAFEX (I&E Window) where forex is traded officially.
On the parallel market where forex is traded unofficially, the naira exchanged for the dollar at N480/$1 unchanged from the previous days trading.
Trading turnover at the I&E window rose significantly by 102.9% as CBN continued with its intervention in the foreign exchange market. Nigeria’s external reserves fell slightly to $36.116 billion as of February 3, 2021, from $36.157 billion as of February 2, 2021, according to data from CBN.
The exchange rate disparity between the parallel market and the official market is about N83.83, representing a 21.2% devaluation differential.
During the week, the central bank revised its non-deliverable foreign exchange forward contracts pricing the exchange rate for the period ending February 24, 2021 at N412.14.
This signaled to investors that the CBN believes the official exchange rate could trade within this range a N17 depreciation from the current average of about N395/$1.
Also during the week, the central bank prohibited cryptocurrency-related transactions through the banking system leading to an outcry by young Nigerians who rely on it as a source of livelihood.
Brent Crude Oil price is also approaching the $60 mark, a psychological boost for Nigeria’s currency handlers.’
READ: CBN explains why it banned banks from dealing with Cryptocurrencies
Trading at the official NAFEX window
The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N396.17/$1. This represents a N1.46 gain when compared to the N397/63/$1 that it closed on the previous trading day.
The opening indicative rate closed at N397.17 to a dollar on Friday. This represents a N1.79 drop when compared to N395.38 to a dollar that was recorded the previous trading day on Thursday, February 4, 2021.
The N401 to a dollar was the highest rate during intra-day trading before it closed at N396.17 to a dollar. It also sold for as low as N381.50/$1 during intra-day trading.
Forex turnover at the Investor and Exporters (I&E) window rose by 102.9% on Friday, February 5, 2021.
According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $47.72 million on Thursday, February 4, 2021, to $96.82 million on Friday, February 5, 2021.
READ: Exxon Mobil, Shell, Chevron, others might be forced to reduce oil production in Nigeria
Oil price approaches $60
Brent crude oil price hit about $59.84, highest in more than a year, on Monday morning, as it approaches the $60-dollar mark.
This is as OPEC and its allies pledged to continue to cut down on global crude oil inventories and crude stockpiles in the United States fell to their lowest levels since March last year.
The rise in oil prices is also aided by expectations that production curbs by OPEC+ would tighten the market in the first quarter.
OPEC oil output has risen for a seventh month in January after the group and its allies agreed to ease record supply cuts further, although an involuntary drop in Nigeria’s exports has limited the increase.
READ: The dangling fate of indigenous oil upstream operators
Higher oil prices drive up Nigeria’s external reserves
The external reserve has dropped further to $36.116 billion as of February 3, 2021. However, this is a significant improvement on the $35.373 billion that it was as of December 31, 2020.
Nairametrics had earlier reported that the government may have taken receipt of the $1-1.5 billion World Bank loan. However, excerpts of the CBN Monetary Policy communique of January 26th suggest the inflows may have been driven by higher oil revenues.
The external reserves have increased by $743 million since December 31, 2020, when it closed the year at $35.3 billion.
Nigeria also needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.
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