Across Nigeria, cryptocurrency users were taken off balance on February 5th 2021 when the CBN reiterated it earlier decision on the restriction order given to all Deposit Money Banks and other Financial Institutions in the country to desist from transacting on cryptocurrency or facilitating payments on the popular digital currency. Wider condemnation trailed the decision of the apex bank as many Nigerians took to the tweeter to register their displeasure on what they viewed as ugly development. On Sunday, February 7 2021, the CBN, through its Ag Director on Corporate Communication, Mr Osita Nwanisibo on a 5 pages letter, came out to outline the risk factors associated with transacting on cryptocurrency and stated that the CBN is committed to salvaging the country's financial system. In the letter, the CBN argued that:
(1) cryptocurrrencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography- a method of encrypting and hiding codes that prevent oversight, accountability and regulation. Therefore it makes no sense trusting in such a platform.
(2) The CBN it wants to align its thoughts with other countries, CBNs, International Financial Institutions, distinguished investors and economists who have identified some significant risks associated with transacting in cryptocurrencies. These risks include loss of investments, terrorism financing, money laundry, illicit financial flow, hard and illicit drugs, gun running, tax evasion and other criminal activities.
(3) The CBN sited The People Bank of China PBOC which which views cryptocurrencies as illegal because they are not issued by any recognized monetary institution and do not hold and legal status that can make it equivalent to money. In the view of the CBN, the lack of legal status to make cryptocurrency become legal tender is part of the reasons the country's financial institutions are cautioned.
(4) The CBN said that a distinguished investor, Warren Buffett called cryptocurrencies "rat poison squared", " a mirage " and "a gambling device", therefore, the Nigerian apex bank has no comfort with cryptocurrency.
(5) It noted that its price is extremely volatile. And this becomes the biggest flaw making it not a lasting means of payment. For example, the CBN recalled that on January 8 2021, bitcoin hit a record high of $42,000 per unit. But about two weeks later, the price dropped to a record low of $28,000. It said that this is an unprecedented volatility that has never been found in the normal currency.
(6) The Central Bank of Nigeria argued that, because cryptocurrencies are issued by unlicensed and unregulated entities, therefore, their usage has gone against the key mandate of the CBN who are the issuer of legal tender in Nigeria. It reminded Nigerians that the CBN also issues digital currency. But that the cryptocurrencies issuers are illegal.
(7) The CBN is afraid that the very name and nature of cryptocurrencies suggest that their patrons and users value anonymity, obscurity and concealment. And the apex bank wonders if they are legal why the disguise?
(8) The CBN hinted that some cryptocurrencies are now used as speculative assert rather than as a means of payment. And that explains the significant volatility and variability in their prices. Therefore, the CBN feels it is quite reasonable not to dabble into a mechanism that promote speculation.
(9) The apex bank revealed that some cryptocurrencies are limited in supply with the new issuances predetermined at a gradual decelerating pace, therefore, it has created a perverse incentive the drive users to stockpile them believing that their prices would rise as the demand increases.
(10) The CBN worried that the conglomerate of desperate, disparate and unregulated actors in the cryptocurrency world are a serious threat to the sophisticated financial system. Therefore, it becomes imperative to discourage its usage in Nigeria.
(11) The CBN is confident that unlike the fiat currencies which enjoy the full faith and comfort of a country, the cryptocurrencies do not have intrinsic values and do not generate returns by themselves. Hence, the need to jettison its patronage.
(12) The Central Bank of Nigeria reasoned that unlike the fiat currencies where the price of investing in stock market reflect market fundamentals, cryptocurrencies do not have fundamentals and would never have.
(13) The CBN is concerned that having brought about new versions of cryptocurrencies with streams of new mathematical models, it is important to note that an infinite supply may someday crash the price to zero. If this happens, we could only imagine the unprecedented loss its investors would record.
(14) The CBN envisaged the shaky future of small retails and unsophisticated investors, that there is a high probability of massive loss due to cryptocurrencies high volatility if they continue to float the financial space.
Would Nigerians succumb to these suggestive risk factors? Are the CBN arguments on cryptocurrency really reasonable? But the President of Kenya, Mr Uhuru Kenyatta while addressing the key stakeholders in his country's economy noted that African countries should not allow digital industrial revolution to pass them by. He said he has set up a task force to see how Kenya could embrace blockchain technology revolution so as to make the most of the internet of things. He decried that industrial revolutions in the past had passed them by, but the digital blockchain technology of the 21st century will be well harnessed in Kenya.
Similarly, Ghana has since embraced blockchain technology and has used it to increase the GDP of their country. The United States Internal Revenue Service has included cryptocurrency as property tax. Russia has legalized the use of cryptocurrency in their country though it does not allow it to be use as means of payment. In August 2018, the bank of Thailand had announced that it would be creating it own cryptocurrency called The Central Bank Digital Currency CBDC. As it stands now, most Nigerians have found Ghana as a favourable climate to invest in blockchain technology and Cryptocurrency.
Blockchain technology is a digital industrial revolution of the 21st century. Why then would Nigeria with a good stake in digital economy not embracing cryptocurrencies to generate more revenues to government? Well, if the outlined points from the CBN are salient enough, then Nigerians will have been shelved from imminent danger. But if the highlighted points from the apex bank are not in good fate, then someday in the future, the policy shall be reviewed for what is best for the country.
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