Central Bank of Nigeria (or CBN) put out a letter stating that all the banks in Nigeria that have anything to do with cryptocurrency should stop whatever they are doing with them and no transaction involving cryptocurrency should occur any longer. In this article, I will be analyzing the letter they sent, the previous 2017 letter sent by the CBN, the stance of the SEC, and general thoughts and predictions of how this might turn out.
Without further ado, let’s cut to the chase. If you’ve been on social media for the past couple of days, you probably would have seen the CBN letter. I mean it’s almost as if they literally woke up and decided to shut it down overnight but that’s not the case. Let’s go back in time a bit. The first circular on Cryptocurrency by the CBN was a letter in 2017 in which they referred to cryptocurrency as Virtual Currencies. The concern of the CBN was that Crypto is untraceable, and anonymous and hence can be used by criminals to launder money and finance terrorism.
They were also concerned that the nature is Virtual currency is also unregulated all over the world and people may lose their money without any legal redress or solution to get that money back, especially if crypto companies close down their business. This would have been true in the past but now many crypto services now have authentication methods. However because crypto is untraceable if you send it to the wrong wallet, you might not get it back.
In this same letter, the CBN asked that banks do not use, hold, trade, and/or transact in any way in virtual currencies. They also asked that if banks have any customers that are trading crypto, they should make sure the customers are verified and are not Money Launderers or Terrorism Financiers and if they find out that they are, they should discontinue their relationship with them, and report them to the Nigerian Financial Intelligence Unit (NFIU) immediately.
The last line of the letter was that Bitcoin, Ripple, Litecoin, and other or any form of crypto is NOT legal tender in Nigeria meaning that it’s not money and any bank or person transacting with it is doing so on their own risk. The SEC, which is the Security and Exchange Commission in Nigeria whose main duty is to regulate investments and securities in Nigeria sort of gave cryptocurrency some “legitimacy” although not directly, it called cryptocurrency an asset. A digital asset. In fact, in their world, they said that the position of the SEC is that virtual crypto assets are securities unless proven otherwise. Their whole point was to regulate cryptocurrency and any person individual or corporate who is involved with any aspect of blockchain-related activities. They required that if anyone wants to trade crypto, they may have to establish a branch office within Nigeria. One thing that they also landed on though, like the CBN is that crypto is NOT legal tender, aka, crypto is not real money in simple terms.
All of that brings us to today, where the CBN issued a letter in February of 2021 that dealing in Bitcoin or any cryptocurrency for that matter by banks is prohibited in other words it’s been banned/forbidden and dare I say illegal now. Any commercial bank that breaches this directive by the CBN will face severe regulatory sanctions aka we will seize your license if you try to be involved with cryptocurrency. The last statement in this letter is that the banks don’t have any time to sort their affairs, and this directive or rule is with immediate effect so starting the second the letter goes public, no bank should deal in crypto. More “details” also came out about how the FBI tipped the CBN that some Nigerians were using bitcoin to target stimulus packages from the US and the west in bitcoin, this was on the front page of ThisDay Newspaper.
In fact, and on a minor note, the first letter we saw was sort of confusing and full of spelling mistakes. They wrote Central of Bank of Nigeria and they also spelled public as pubic which made some people think it was a hoax but unfortunately it wasn’t. They corrected it and linked it to the CBN website. All of us Nigerians know, that we mostly have to use a Nigerian bank account. These cryptocurrency apps needed to integrate with a Nigerian bank as a partner so we can easily trade (I.e buy and sell crypto and have a Nigerian account to transfer to and from).
This was going smoothly in fact, according to a Quartz article Nigeria, in the last 5 years, Nigeria has traded over 60,000 bitcoin or 566 million dollars which is second only to the US on Paxful. Not just that though, there was a report by Stears that Nigeria traded as high as $200 million dollars in Bitcoin per month aka over 95 billion Naira way more than the Nigerian Stock Exchange did in the span of 3 months in the 2nd quarter of 2020. That is crazy!
The BuyCoins CEO on Medium stated that in Nigeria they traded more than $141 million dollars in 2020 alone, that’s over 67 billion Naira, similarly, BitSika on Twitter posted that they also transacted over $39 million dollars of which Nigerians deposited $18 million dollars, that’s a total of almost $200 million dollars in a year and that’s just 2 companies.
If you look at these letters and all that’s happened, the CBN is most likely worried about 2 things, one is Fraud. Nigeria is kind of infamous for the word 419, there’s the case of a certain hushpuppy and the quote-unquote yahoo boys. The argument of the CBN could be that they are trying to prevent fraud, money laundering, and terrorism financing and they are right. However, the other way to have looked at this would be strategic. These companies like Quidax have limits to what you can and cannot do on the app, you can’t even send any money unless you have your BVN, which is a highly traceable number in our banking system. The highest limit you can even send is $40,000 per day and for that, you would need to submit tons of Identification documents and even a proof of residence which they would vet.
The other reason which would have made CBN ban Bitcoin is the strain on foreign exchange. The CBN has been making a lot of moves to help the Naira and stop more US dollars from leaving Nigeria. So last year, they banned the use of dollars for food and fertilizer imports, they reduced the spending limit on many many Naira cards, I think the limit is like $100 per day, recently as well, services like Transfer Wise which I use to receive money sometimes from dollar to Naira has stopped working, to be fair, the exchange rate was quite bad, I did receive way less value for my dollar received and the CBN policy is that Nigerians receive their dollar directly in USD cash or in a Dollar Account based in Nigeria, AKA a Domiciliary account. Essentially they did and are doing anything that stops Nigerians from demanding dollars to buy things from outside the country. Which from their perspective makes sense to at least help the Naira not lose its value. Now moving back to Crypto, the way these apps worked was that you had the cryptocurrency trading and exchange platform, that’s the company themselves.
Then in between is the bank powering them with a Virtual Account that operates exactly like a Nigerian account which would help you deposit money to buy crypto or receive money when you sell crypto. One major bank that does this is Providus Bank keep this name in mind as we’ll revisit it soon. Immediately that announcement was made, cryptocurrency companies like Quidax, BuyCoins, Binance, Patricia, and the likes issued similar statements. They mostly mentioned that now you cannot fund your account with Naira anymore. What this simply means is that Nigerians cannot buy Bitcoin with their Naira, so you would only have to trade with someone you know who already has bitcoin one-on-one.
However, you can still trade on most of these platforms, you can withdraw but it would be slower and it would be a bit tedious to buy bitcoin right now. Following this as well, a lot of apps like PiggyVest, and Cowrywise that help people save money couldn’t use their Virtual Accounts. These virtual accounts were provided by Providus Bank which currently hosts a lot of virtual accounts on these apps. PiggyVest had to switch to Wema Bank over the weekend to power their virtual Nigerian bank accounts on their platform immediately. Even before these letters, companies like Rubies couldn’t even have their customers debit or withdraw their cash. Which is all happening together. Like one giant Orchestra. I most definitely may be wrong but it’s almost as if it’s the fintech start-ups in general that are going through all these, and the companies powering them as well, they are in a really rough spot right now.
I know, this was a lop to go through right? What’s the way forward? What’s going to happen? How do we move from here? As I speak, I’m sure many things will change and be updated from the date this video is published so if you haven’t subscribed to this channel, and follow me on Twitter @fosudo I’ll be sharing any updates get. One thing is for sure, Nigerians will find a way around this, going back to the roots of trading bitcoin by P2P or Peer to Peer trading with individuals on platforms that power it. Right now on almost all these platforms, you are able to send and receive bitcoin into your wallet so you’re covered. Also, speaking of solutions. If you’re a freelancer who mainly receives foreign exchange, or you still want to keep trading bitcoin and/or just want to secure your finances, work on creating a Domiciliary account in Nigeria. Most of them would usually need 2 guarantors who hold current accounts in commercial banks. The CBN is trying to protect the USD and they don’t have anything against domiciliary accounts as far as we know. Next up, Create an account on Payoneer, I’m not sponsored by them, they’ll give you the US checking account and you can send direct dollar credit to your USD Domiciliary account here in Nigeria.
This is a major solution, it might take some time to implement for you but it’s one of the best solutions to these things. That’s pretty much it guys, what are your thoughts about what’s going on? Would you say the CBN was right by doing this?