The Central Bank of Nigeria says its attention has been drawn to the rash of comments and reactions which its reminder circular to Deposit Money Banks has generated saying that it is not a new directive and justifying its position.
The bank’s justification is contained in a write-up by its Acting Director, Corporate Communication, Mr. Osita Nwanisobi titled “Response to Regulatory Directive on Cryptocurrencies”.
“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. Indeed, this position was reiterated in another CBN press release dated February 27, 2018.”
The Apex reeled out a number of points that inform it’s stance on the matter. This includes the fact that the patrons and users are largely shrouded in secrecy, the tendency to deploy it to the funding of illegal ventures such as terrorism and illicit drug running. Another sore point of the emerging payment system is its extremely volatile price fluctuations.
“First, in light of the fact that they are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007),as the issuer of legal tender in Nigeria. In effect, the use of cryptocurrencies in Nigeria are adirect contravention of existing law. It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and cryptocurrencies. As the names imply, while Central Banks can issue Digital Currencies, cryptocurrencies are issued by unknown and unregulated entities.
“Second, the very name and nature of “cryptocurrencies” suggests that its patrons and users value anonymity, obscurity, and concealment. 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. Indeed, many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities.
In fact, the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known. They have also been recent reports that cryptocurrencies have been used to finance terror plots, further damaging its image as a legitimate means of exchange.
“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. This limited supply has created a perverse incentive that encourages users to stockpile them in the hope that their prices rise.
“Unfortunately, with a conglomeration of desperate, disparate, and unregulated actors comes unprecedented price volatility that have threatened many sophisticated financial systems. In fact, the price of ether, one of the largest cryptocurrencies in the world, fell from US$320 to US$0.10 in June 2017. The price of Bitcoins has also suffered similar volatilities.
“Bitcoin, the best-known cryptocurrency, hit a record high of $42,000 per unit on January 8, 2021, and sank as low as $28,800 about two weeks later. This is far greater volatility than is found with normal currencies.
“Given that unlike Fiat Money which accompanied by full faith and comfort of a country or Central Bank, cryptocurrencies do not have any intrinsic value and do not generate returns by themselves. When one buys a stock, say of a conglomerate in the Nigeria Stock Exchange, its price reflects the activity and production of that conglomerate and the value people place on their goods and/or services. This price may rise as the conglomerate produces better goods/services and probably gains greater market share. The reverse would be true if the conglomerate does not innovate to improve the quality of its goods/services. In other words, the price of that stock reflects market fundamentals. In contrast, , cryptocurrencies do not have fundamentals and would never have fundamentals. Investors only buy in the hope that its use and acceptability will rise, thereby pushing up its demand.
The bank dismissed the insinuation that the directive is a disincentive to FinTech deepening and development.
“The CBN would like to assert that our actions are not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system. To the contrary, the Nigerian payment system has evolved significantly over the last decade, leapfrogging many of its counterparts in emerging, frontier and advanced economies propelled by reforms driven by the CBN. This is evident from the variety of participants, products, channels, cutting-edge technology in the payments system.
“The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians (including the youth population) from the risks inherent in crypto assets transactions, which have escalated in recent times, with dire consequences for the integrity of the financial system and financial stability.
“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 its use and protect our financial system from activities of fraudsters and speculators, Nwanisobi concluded.