The Central Bank of Nigeria banned banks from servicing cryptocurrency exchanges in the country, reflecting the measures taken by their Indian counterpart in 2018. The reaction to the news has been divided between the political class along ethnic and geopolitical lines, with more progressive elements requiring a covert approach from the top banks.

In November 2020, Nigeria’s GDP fell for the second quarter, pushing the country’s economy into another recession – the second in five years. According to the Nigerian Statistics Office, 26 out of 36 states in Nigeria received no foreign investment in 2020.

Even before the outbreak of the coronavirus pandemic, the Nigerian economy was hit hard by alleged mismanagement and inefficiency of the current administration. However, the country’s cryptocurrency economy flourished during the same period.

Nigeria has become an adoption center for cryptocurrency, and data from Google Trends shows that the country is first in the world in terms of interest in Bitcoin (BTC) searches. Without access to currency trading, Nigerians turn to cryptocurrencies as the best way to keep their fortunes safe from falling naira.

CBN is not a fan of Bitcoin
Earlier in February, CBN issued a circular urging all financial institutions to stop offering cryptocurrency exchange services. The notice also obliged the banks to close the accounts of individuals or entities whose participation in cryptocurrency trading was discovered.

To defend its position, the Nigerian central bank used the usual arguments: instability, money laundering, terrorist financing, the Silk Road, rat poison, among others. Even the Nigerian central bank has highlighted measures taken by countries such as Bangladesh, Ecuador, Egypt and Nepal, not to mention anyone as reasons for banning it. In a statement clarifying its position, CBN noted:

“Recent regulatory guidance has become important to protect the financial system and the people of Nigeria from the risks inherent in cryptocurrencies.”
Amid hype over the ban, the central bank announced that the announcement was not a new decision, but rather a repetition of its previous position from 2017. However, the announcement in 2017 warned banks against storing or trading cryptocurrencies; There has been no mention of a ban on financial institutions offering account services for exchanging cryptocurrencies.

For some cryptocurrency advocates in Nigeria, who have spoken to the Cointelegraph about a promise of anonymity to prevent negative action from their banks, it is a malicious subtext of CBN’s actions. For example, some have argued that the ban is part of an attempt to support their “friends” with the change office business.

In fact, major actors at the BDC Theater have come out in support of the move and described it as a step in the right direction when it comes to combating money laundering efforts. Meanwhile, cryptocurrency trading on stock exchanges in Nigeria was implemented according to strict Know Your Customer protocols, including verification steps, including the important bank confirmation number.

With the CBN banning foreign transfers in Naira, the adoption of cryptocurrency in Nigeria is becoming more widespread. Technically savvy Nigerians, dissatisfied with the exorbitant services and prices of BDC operators, can access forex through cryptocurrencies, especially cryptocurrencies.

It is also rumored that CBN’s actions are part of the government’s ongoing campaign against EndSARS protests in October 2020 against the Special Anti-Theft Squad, a rogue police force that has been involved in multiple blackmail and extrajudicial killings. When banks closed accounts to individuals and companies that supported the protests, many of them turned to cryptocurrencies to circumvent attempts at financial control.

The cryptocurrency case
According to CBN, the government has received complaints from the US FBI about the actions of cryptocurrency scammers. In fact, in July 2020, the Cointelegraph reported a complaint to the FBI against alleged Nigerian fraudsters who use cryptocurrency to steal millions of dollars.

CBN went further and exaggerated the use of cryptocurrencies by criminal enterprises, saying: “Many banks and reputable investors have been separated from the cryptocurrency due to the devastating consequences of the widespread use of cryptocurrencies for illegal activities.

Although there are cases of criminal use of cryptocurrencies, the scope of this activity is negligible compared to the overall global matrix of cryptocurrency transactions. In its Cryptocurrency Crimes Report in 2020, analyst firm Chainalysis found that only 0.34% of cryptocurrency transactions in 2020 were related to illegal activity.