There is no young Nigerian who has not heard that the Central Bank of Nigeria has banned the use of Cryptocurrencies and directed Banks and other financial institutions from transacting in and with entities dealing with cryptocurrencies. In this piece, I examine the Government’s rationale behind this decision and examine what their response should be instead.
To begin, for the sake of novices, I would define what Cryptocurrency is:
Cryptocurrency is a kind of digital money that is designed to be secure and, in many cases, anonymous. It is a currency associated with the internet that uses cryptography — the process of converting legible information into an almost uncrack able code, to track purchases and transfers. It is one of the safest and most secure means of communication.
How does it work?
Cryptocurrencies use decentralised technology to let users make secure payments and store money without the need to use their name or go through a bank. They run on a distributed public ledger called block chain, which is a record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated maths problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets.
Cryptocurrencies and applications of block chain technology are still nascent in financial terms and more uses should be expected. Transactions including bonds, stocks and other financial assets could eventually be traded using the technology.
Even though the circular of February 5 has sparked a lot of reactions, it is important to know that the restriction is not new, but only a reminder of the earlier circular that was dated January 2017. The CBN’s directive has since gotten very harsh reactions on social media with many condemning the policy as a deliberate attempt by the government to impoverish young Nigerians who have been able to create wealth for themselves through crypto trading. This Crypto trading works like stocks — you buy when the price is low, you keep and then sell when the price increases. The only difference between this and stocks is that Crypto will always continually rise, as the demand rise. Its price might crash, but it would never reach an all-time low. This has been the sole source of income for many youths who cannot find jobs due to the government’s inability to create them, making them millionaires in the process.
Interestingly, Nigeria along with other countries ranked as the worst countries to start a career do not wholly accept or legally recognize cryptocurrency and other digital assets.
One of the many reasons the CBN cited as the reason for the ban is that cryptocurrency is that due to the anonymous nature of the tender, it is used by criminals for loss of investments, money laundering, terrorism financing and illicit fund flows. This is laughable. Bitcoin came into existence in 2009 and terror organizations have wreaked havoc on the world before then. If the apex bank was that efficient, why haven’t they tracked down the bank accounts of those sponsoring terrorists in the nation?
The Central Bank must understand that the cryptocurrency is the future. It is one rolling stone that cannot be stopped. Tesla’s CEO Elon must have said this repeatedly. His company recently invested 1.5 billion dollars and are considering including it as a mode of payment.
What the CBN must do must be to partner with these cryptocurrency companies. Since no one owns Cryptocurrency as a central monopoly, no one can control it. They do not have a regulation system. Crypto tokens are not made to regulate. This is why it is usually difficult for the governments (or countries) to legalize these currencies. This directive will only increase the spotlight on that tender. People will find smarter ways to trade under the government’s radar. The world is moving fast and we cannot afford to be behind as a developing nation. Policies like this take us back to the Stone Age.