Why Nigeria Rejected Bitcoin, Other Cryptocurrencies - CBN

The Central Bank of Nigeria (CBN) on Sunday said Nigeria is not the only country where Cryptocurrency is outlawed.

It explained that many other countries, central banks, international financial institutions, and investors and economists have also warned against its use.

They include China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia, all of whom have all placed a certain level of restrictions on financial institutions facilitating cryptocurrency transactions.

The apex bank said the countries had also all made similar pronouncements based on “significant risks” that transacting in cryptocurrencies portend, such as the risk of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities.

It noted that in China, for example, cryptocurrencies are completely banned and all exchanges closed as well. Banks and other financial institutions are not allowed by law to transact or deal with cryptocurrencies.

“China’s Central Bank, called the Peoples Bank of China (PBoC), has provided several directives ruling out the use of these currencies. The PBOC views cryptocurrencies as illegal because they are not issued by any recognised monetary institution and do not hold any legal status that can make them equivalent to money. Hence, banks and all stakeholders are strongly advised against their use as a currency,” the CBN said.

The apex bank defined cryptocurrencies as digital or virtual currencies issued by largely anonymous entities and secured by cryptography.

Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation.

It said it did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in cryptocurrencies. Indeed, this position was reiterated in another CBN Press Release dated February 27, 2018.

It explained that because they are issued by unregulated and unlicensed entities, cryptocurrencies use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria.

The CBN said: “In effect, the use of cryptocurrencies in Nigeria is a direct contravention of existing law. It is also important to highlight that there is a critical difference between a Central Bank issued Digital Currency and cryptocurrencies. As the names imply, while Central Banks can issue Digital Currencies, cryptocurrencies are issued by unknown and unregulated entities.

“Second, the very name and nature of “cryptocurrencies” suggests that its patrons and users value anonymity, obscurity, and concealment. The question that one may need to ask therefore is why any entity would disguise its transactions if they were legal?

“It is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.

“Indeed, many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities.

“In fact, the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known. They have also been recent reports that cryptocurrencies have been used to finance terror plots, further damaging its image as a legitimate means of exchange.”

The apex bank stated further that some cryptocurrencies have become more widely used as speculative assets rather than as means of payment.