When the Central Bank of Nigeria sent out a circular on February 5 warning the public about the dangers and risks of cryptocurrencies, it stirred local banks and the fintech community into a frenzy. In one stroke, the central bank seemed to have barred financial institutions from dealing in or enabling crypto transactions.
“It’s a crazy one,” said Lightson Ogwor, a 25-year-old graphic designer based in Enugu, a city in Nigeria’s southeast. Ogwor, who has been trading cryptocurrencies since 2016, is one of a growing number of tech-savvy young Nigerians who have turned to cryptos in recent years to get around the country’s byzantine forex trading rules and as an investment opportunity.
Cryptocurrencies have been under increased government scrutiny since last October, when they played a role in supporting the #EndSARS protests against police brutality. The movement was able to sustain itself by taking donations via bitcoin, after the government slapped punitive restrictions on traditional banks. Regulators have also been concerned about a major drop-off in official dollar remittances to Nigeria last year, due in part to Nigerians in the diaspora increasingly using crypto to get around foreign exchange restrictions, after authorities tightened money transfer rules with remittances companies in a bid to buoy the struggling naira. With the naira’s value dropping precipitously over the last decade against the U.S. dollar and other hard currencies, bitcoin has been a useful way to hedge against the multiple exchange rates from the central bank, one set for investors and the much more realistic black market exchange rate.
The early confusion and speculation around its February 5 circular was so intense that the apex bank was forced to issue a five-page press release just two days later. It claimed it had not, in fact, imposed “any new restrictions on cryptocurrencies” because there were already existing restrictions on financial institutions. The central bank also warned about crypto dealings being used in “money laundering, terrorism financing, illicit fund flows and criminal activities” and cited strict cryptocurrency regulations in countries including China, Canada, Indonesia, Bolivia, and Saudi Arabia.
Under its governor, Godwin Emefiele, Nigeria’s central bank is no stranger to making unexpected and sweeping monetary policy decisions, particularly when it comes to backing the naira. Late last month, he doubled down on his hostility to crypto describing it as “money that is created out of thin air.”
But the next day, Nigeria’s vice president Yemi Osinbajo, who often plays the role as the voice of reason in president Buhari’s administration, called on the CBN and Nigeria’s Securities & Exchange Commission (SEC) to find ways to regulate cryptocurrencies, rather than just prohibiting their use, in order to support growth and innovation.
“I fully appreciate the position of the central bank, the Securities and Exchange Commission and … the possible abuses of cryptocurrencies,” said Osinbajo, according to a Reuters report. “There’s a role for regulation here and it is the place of our monetary authorities and SEC to provide a robust regulatory regime that addresses these serious concerns.”
The current government has often claimed it sees a digital future for the struggling economy beyond its long-standing over-reliance on oil exports, but draconian regulatory moves give observers pause about the reality.
“We hope the Bank can take its time to study the blockchain landscape and work with ecosystem players to agree a way forward for regulating cryptocurrency activities,” says Ese Oikhala, a consulting associate at SBM Intelligence, a Lagos-based think tank. “An outright ban is not a suitable option and obviously will slow down our prospect of being globally recognized as a digital economy.”