In the five days since CBN issued a circular banning financial institutions in Nigeria from participating in cryptocurrencies and banks from closing all accounts linked to crypto exchanges; Bitcoin, the leading cryptocurrency, rose from $ 38,300 to $ 48,600 (according to coinbase.com), while Naira moved from 474/480 in the parallel market to 465/475 as buying / selling rates for the dollar (according to abokifx.com).
Obviously, there is no connection between the announcement of CBN and the movement of BTC, nor can any of it be tracked and parallel market rates, statistics like this are continuously used by proponents of this reminder for CBN – and opponents.
Supporters argue that the BTC movement shows that CBN’s move to save Nigerians from cryptocurrency volatility is grounded, while opponents argue that CBN paid too high a price in an unsuccessful fight to stabilize Naira. Each school of thought claims to have the necessary data to substantiate their argument.
However, in all of them, there was a loud silence from one sector that seems to be most affected. Recall that, although the CBN directive will have far-reaching implications for the population, it is addressed to banks operating under their regulatory jurisdiction. Hence the question of how this new directive affects banks.
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How to deal with cryptocurrency has been a recurring global headache for Central Banks. This may not have been obvious in 2009 when bitcoin was created, but over the years, as more coins have been added to the cryptocurrency market and more investors and cryptocurrency companies see it as the future of money, Central Banks have been forced to respond to fiat money diversion. which they consider relevant.
The recent jump in the value of Bitcoin and other cryptocurrencies has seen Central Banks frantically look for ways to regulate the force that could lead to their extinction. Although there is no right or wrong way to approach this regulation, the most consistent form of regulation among central banks has been varying degrees of prohibition of trading and possession of cryptocurrencies. The Nigerian central bank repeated the ban about a week ago.
READ: Nigeria dwarves Africa in Bitcoin P2P amid CBN cryptography ban
Consequences for Nigerian banks
Nigerian banks are at the heart of the country’s financial ecosystem. Therefore, looking at how they are affected can provide a reliable background on how other financial institutions will feel the pinch of any CBN policy.
Having a level regulator for you is an added advantage in any business search and strengthens belief in the system. CBN, in addition to banning cryptography, has once again supported fiat currency and ensured that the Nigerian banking system remains relevant. Although CBN’s ban on cryptography is not a law banning cryptocurrencies as proposed in India, the negative publicity surrounding cryptocurrency created by circular CBN could stop the tide of potential cryptocurrency users who would rather invest in cryptocurrency exchanges than banks or stock exchanges.
Second, the ban will help protect remittances from the Nigeria diaspora, valued at $ 24 billion and which has been the main focus of CBN (if they are looking for its last three circulars). Cryptocurrency is widely accepted to circumvent these policies resulting in a loss of income for banks and a loss of relevant data for CBN’s GDP analysis. A cryptocurrency should help redirect remittances through appropriate channels.
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Nigeria’s Fintech start-up space has been hectic in recent years and has continued to be a roadway for foreign investment inflows. The sector raised more than $ 600 million between 2014 and 2019, and in the first quarter of 2020 it was able to raise $ 55 million from 99% of foreign sources.
CBN’s renewed stance on cryptocurrencies, while seeking to protect these institutions within its remit (including Fintechs), could see Nigerian Fintechs suffer a loss of investment as more technologically advanced companies and their highly influential CEOs approve cryptocurrencies.
Also, Generation Z millennials and Nigerians who had reason not to trust CBN by following the role of the regulatory body in freezing the accounts of #ENDSARS protesters already see the move as political, and commercial banks as CBN accomplices; further deepening their distrust of major commercial banks.
READ: 50% of the top 500 companies will hold Bitcoin by 2021
The renewed CBN directive is not a law per se. It does not criminalize holding or trading cryptocurrencies, but only restricts banks from facilitating that trade. Crypto trading, on the other hand, has evolved over time that peer to peer (P2P) exchanges are already booming in a subsector where agency agencies use an escrow system to collect their fees in cryptocurrency, while trading parties can transfer fiat under harmless looking narratives making banks unprepared cryptocurrency channels.
Also, the guideline for closing the accounts of individuals with a history of cryptocurrencies does not contain a blacklist option on the BVNs of such customers. Some banks may consider this self-sabotage and are reluctant to close such accounts knowing full well that the aggrieved customer will most likely enter the next bank and open another account; move your funds there and continue transactions as usual.
While unlikely to hit the bottom of banks in the short term, CBN’s enforcement of the cryptocurrency ban could leave Nigerian banks ill-prepared for the global crypto economy, as we still see evidence that cryptocurrency is no longer a fad, but a growing form of payment .
CBN’s urge has always been the financial involvement of the unbanked through digitalization. He might borrow a sheet from the SEC on how to regulate this cryptocurrency and then adjust it as a tool for financial inclusion, instead of restricting banks from playing in this market.
One way or another, the future of cryptocurrency and its importance in the global economy over the next few years will show whether CBN missed a golden opportunity for Nigerian banks to take advantage of Nigeria’s place as the largest cryptocurrency market in Africa. As with most financial decisions, time will tell.