Central Bank of Nigeria (CBN) on the 5th of February 2021 released a letter addressed to banks and other financial institutions which stated that dealing in cryptocurrencies and facilitating payment for cryptocurrency exchanges are prohibited.
The CBN further instructed all banks and other financial institutions to identify individuals or entities who transact in cryptocurrency or operate cryptocurrency exchanges and close the accounts of such persons or entities.
The letter elicited major concern amongst the public with many concerned about the potential negative effect it could have on Nigeria’s growing cryptocurrency market.
In response, the CBN issued a press release “Press Release” on the 7th of February 2021, addressing its earlier directive and providing reasons for its prohibition of cryptocurrency
The CBN stated in the Press Release that:
1. cryptocurrencies are issued by unregulated and unlicensed entities and as such, the use of cryptocurrencies in Nigeria contravened existing law as they are not legal tender. It also identified the anonymity of cryptocurrency as an issue. It stated that anonymity made it susceptible to illegal use such as money laundering and the financing of terrorism.
2. The volatility of cryptocurrencies which it said has threatened the stability of financial systems in other country.
Nigeria has the second largest Bitcoin market in the world with over $500 million worth of Bitcoin traded over the last five years. The CBN’s directive on cryptocurrency transactions will have an effect on the cryptocurrency market in Nigeria as it will prevents traders from buying cryptocurrencies with their credit/debit cards issued by Nigerian banks or receiving proceeds of cryptocurrency sales from exchanges which facilitate the buying and selling of cryptocurrency.
Some exchanges have found a way around the restriction by switching to peer-to-peer trading which enables individuals buy or sell cryptocurrency from individual traders as opposed to the exchanges. In effect, this does away with the need for exchanges to operate settlement accounts in Nigerian banks.
Meanwhile banks have begun to identify and deactivate the account of individuals with inflows/outflows from/to cryptocurrency exchanges. It is unclear if affected individuals would be able to reopen accounts with these banks ever again.
On the 11th of February, the Nigerian Senate deliberated on the CBN’s directive, with some Senators expressing reservations about the ban on cryptocurrency transactions.
The Senate thereafter resolved to invite the CBN Governor to give a briefing on the actions of the CBN.
Some Ngerians have expressed the opinion that the decision to ban cryptocurrency was as a result of the EndSARS movement which was heavily financed through cryptocurrency and the yahoo menace which so many Nigerias youths are getting involved in recently.