Responding to many condemnations against the Central Bank of Nigeria, following the directive given to Deposit Money Banks to stop cryptocurrency transactions in the country, a statement by the Acting Director of Corporate Communications, Mr. Osita Nwanisobi, revealed that there are no new restrictions on cryptocurrency, only re-enforcement of old rules. An earlier CBN circular on the 12th of January, 2017 forbade all banks in Nigeria from holding any trade or transaction in cryptocurrency.
Nwanisobi noted that several other countries in the world have certain restrictions and even ban on cryptocurrency transactions with their financial bodies, like China. Some reasons given by the Acting Director include:
Cryptocurrencies are issued by unregulated and unlicensed entities. Therefore, their use in Nigeria goes against the key mandates of the Central Bank of Nigeria, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria. On that note, the use of cryptocurrencies in Nigeria is a direct contravention of existing law.
Also, the name and nature of the operation is built on anonymity, obscurity, and concealment. In his words,
“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.
Given that unlike Fiat money, which is 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 and price. But since new versions of cryptocurrencies come on stream with new mathematical models, an infinite supply may someday crash the price to zero.”
The Central Bank of Nigeria emphasized that its actions are not in any way hostile to the development of FinTech or a technology-driven payment system, rather, 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 Central Bank.