Cryptocurrency blockage: Fighting a lost battle

Cryptocurrency

 By Geoff Iyatse (Asst. Business Editor)

On February 1, 2021, the billionaire Tesla boss, Elon Musk, added #bitcoin to his Twitter and hoped cryptocurrencies would get “broad acceptance”. The viral post cleared his position on the business which had kept him vacillating for eight years and helped in pushing the digital currency’s price up by as much as 20 per cent.

Four days after the Musk endorsement, the Central Bank of Nigeria (CBN) issued a circular, preventing financial institutions from “dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges.” In a letter, the CBN said it was reminding banking institutions that deal in digital currencies or facilitating their transactions was “prohibited”.

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It charged the banks to identify people or entities transacting with cryptocurrency or operating cryptocurrency exchanges on their platforms and “ensure that such accounts are closed immediately” or face “severe regulatory sanctions”.

Before and even after the latest CBN’s statement on cryptocurrency, Nigeria is classified on the global digital currency map as a “permissive”, as against “contentious” and “hostile”, country. But with the recent move, there are concerns among market traders that the country could join the prohibition list of the investment that has become a fad globally.

This is not the first time the apex bank would flirt with the youth-centric investment window. In 2017, it issued similar circular, banning transactions in all forms of virtual currencies. Subsequently, it issued statements to caution Nigerians to be wary of investments in cryptocurrency, stressing that “virtual currencies are not a legal tender” in the country.

Some time ago, a committee was jointly set up by the Central Bank and the Nigeria Deposit Insurance Corporation (NDIC) to look into the possibility of adopting bitcoin and other technology-driven currencies. The committee submitted its report after which several sub-committees were said to be “working on the issue”, according to the Director, Banking and Payments System Department at CBN, ‘Dipo Fatokun.

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In a press release issued on February 28, 2018, the regulator repeated that cryptocurrencies such as Bitcoin, Ripples, Monero, Litecoin and Dogecoin Onecoin as well as exchanges such as NairaEx were not licensed or regulated by the CBN. It warned, like many of its peers around the world, that dealers and investors in any kind of cryptocurrency were not protected by law, hence may be unable to seek legal redress in event of failure of the exchangers or collapse of the business.

Of course, investors in digital currencies are aware that it is a risky business where individuals lose miserably or make unimaginable fortunes in a twinkle of an eye. Crypto assets are volatile. But so also are many other investments, including equity and foreign exchange. When the bubble bursts, investors lick their wounds and wish they were a little smarter.

Indeed, participation and knowledge of crypto investment have continued to spread like wildfire. But among the regulators, digital currency exchange bears the burden of wariness and contention, similar to historical controversy and scepticism witnessed every time money transformed to a more technologically relevant form.

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And there are sufficient concerns about its safety, volatility and security to keep financial regulators awake. For one, in the history of mankind, money laundering had never been this sensitive. Yet, a reasonable number of countries have been bold enough to confront the underlying challenges of digital currencies and accept the innovation for what it is – undeniable reality.

For instance, apart from Ecuador and Bolivia, Caribbean, North and South American countries have recognised virtual currencies as acceptable means of exchange. In Canada where official acceptable is still in distrust, companies dealing in virtual currencies are required to register with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac), implement compliance programmes, keep specified records, report suspicious or terrorist-related transactions and check if a customer is a politically-exposed person.

In Europe – across the west, central and north –, there are no legal constraints on virtual currency transactions. As of 2013, the German Finance Ministry had announced that bitcoin was a “unit of account” and could be used for taxation and trade in the country, implying that transaction, as in the case of euros, must attract value-added tax (VAT). It, however, did not classify it as foreign currency or e-money but as “private money” which could be used in multilateral clearing circles. In November 2019, Germany took its bitcoin liberalism a notch higher, passing a law to allow banks to sell and store the money equivalent.