The excitement that greeted the report that the Central Bank of Nigeria (CBN) had plans to launch its own digital currency by December this year was palpable, with experts saying it is a boost to the economy. In this report, BENJAMIN UMUTEME examines the implications of the decision on the nation’s financial and money market.
Globally, the issue of digital currency continues to divide opinion among financial experts. While one school of thought see it as the future, others are of the opinion that it can’t be relied on to drive economic growth. Scholars interested in Decentralized finance are quite familiar with the debate regarding the true identity of crypto-currency: is it a currency, a commodity or an asset class? Its many controversies notwithstanding, it is this amorphous nature that further complicates attempts by regulators to exert any control over digital tokens.
Therefore, it was not surprising when in February, the Central Bank of Nigeria (CBN) has ordered all banks to close any accounts transacting with crypto-currencies. The CBN said it was reminding regulated banking institutions that dealing in crypto-currencies or facilitating payments for crypto-currency exchanges is prohibited.
In a circular titled ‘Letter to all Deposit Money Banks, non-bank financial institutions and other financial institutions,’ the apex bank stated that, “Further to earlier regulatory directives on the subject, the bank hereby wishes to remind regulated institutions that dealing with crypto-currencies or facilitating payments for crypto-currency exchanges is prohibited.
“Accordingly, all DMBs, NBFIs, and OFIs are directed to identify persons and/or entities transacting in or operating crypto-currency exchanges within their systems and ensure that such accounts are closed immediately. Please, note that breaches of this directive will attract severe regulatory sanctions. The letter takes immediate effect.”
However, clarifying the apex bank’s position in the issues before the Senate, the CBN governor, Godwin Emefiele, said the bank’s decision to prohibit deposit money banks, non-banking institutions and other financial institutions from facilitating trading and dealings in crypto-currency was in the best interest of Nigerian depositors and the country’s financial system. According to him, crypto-currency was not legitimate money because it was not created or backed by any central bank.
“Crypto-currency has no place in our monetary system at this time and crypto-currency transactions should not be carried out through the Nigerian banking system,” he said.
There was anger across the length and breadth of the country as many felt that the CBN was unwittingly sending thousands into the unemployment market while at the same time closing down businesses.
For crypto-currency market expert, Ayomide Adunbi-David, the CBN by the pronouncement is discouraging foreign investors that are planning to enter the Nigerian market. As the second-largest traders of Bitcoin, Adunbi-David said the Central Bank by its action was trying to restrict traders from funding their Bitcoin wallets through Nigerian bank accounts.
“Generally, everybody is not happy. Personally, I think they are trying to halt the tempo of crypto business in Nigeria to give the big boys enough time to come into the business. The policy is not encouraging trade and foreign investors to start business. Other countries are trying to include crypto into their financial system; Nigeria is trying to block it.
“It only means two things: they are trying to frustrate people till they find a means to tax crypto transactions or they are trying to hold it for the main time pending when the big boys come in and cash out big on it. You know the way Nigeria is; it is all about knowing someone,” he said.
Speaking with this reporter, Uche Uwaleke, a professor of capital market, noted that the CBN took the decision because it was “concerned that they are being used for money laundering, terrorism financing and other criminal activities given the anonymity associated with virtual currencies.”
Uwaleke noted further that the apex bank’s action has only generated more interest in the crypto-market.
Briefing journalists after its Banker’s Committee meeting recently, the director, Information Technology Department of the CBN, Rukayat Ahmed, revealed that the bank was making plans to launch its own digital currency by December, this year. She said with 80 per cent of Central Banks exploring the possibility of issuing their own digital currency, Nigeria cannot afford to be left behind.
“Before the end of the year, the Central Bank will be making special announcement, possibly launching this kind of currency to its populace,” she said.
In his view, a political economist and development researcher, Olamilekan A. Adefolarin, said the CBN’s plan to launch its own digital currency was commendable. According to him, it shows the bank’s foresight.
Adefolarin said further that it would boost the economy, strengthen the naira and safeguard the monetary policy.
He also said the bank’s launch of its own “crypto-currency will engender healthy digital currency trading in Nigeria with fiat backing will go a long way to remove the concerned raised by stakeholders in the monetary and financial sector. This is a sundry initiative to re-energise the economy through monetary action.”
Likewise, a financial analyst, Dr. Chimbo Obieze, commended the CBN for the move to introduce digital currency in the country. While describing the move as timely and a welcome development, Obieze said it “is a great and new innovative development to further open the frontier of the financial sector of the country and create wealth for our people.”
He said, “The launch of the CBN digital currency will create huge digital market and make the country a digital currency hub in Africa. The country alone, with a population of over 200 million and half of it being youths mostly operating in the digital space, would be huge market and patronage for the CBN’s digital currency to grow geometrically.
“This is excluding other youths from other African countries, especially those that are close to us that will key into the CBN digital currency platform as well. This is fantastic. I see it being massive, huge and likely to become an economic game- changer for the country.”
The expert further told this reporter that the policy would have a huge impact on FinTech as it would Gina long way to sanitise the digital currency trading market in Nigeria.
“Moreso, it would create the enabling environment for stakeholders and players in FinTech sector. Furthermore, it’ll be an avenue for employment and job creation aAs well as youth empowerment with FinTech skills and knowledge. In addition, it would integrate the fin-tech sector into the mainstream economy for a robust national economy.
“The naira abysmal performance over the years is the prime factor to current economy woes, especially the existing food and other related items price upsurge. CBN Crypto-currency would strengthen the naira, reduce the pressure on the naira as well as take away the risk on our foreign reserves. Importantly, the naira would regain it monetary function power as a leading African currency.
“The CBN needs to be commended for this initiative as we hope this would help to strengthen the naira and ultimately impact the economy positively; hence the CBN must mid-wife this policy against internet frauds, unscrupulous traders and double standards. Equally apt is the need for the CBN to ensure it carries out an enlightenment campaign on this policy as well as engage stakeholders.”