Crypto-currencies Fuelling Terrorism, Money Laundering ― CBN Warns

BY COBHAM NSA – Amid opposing views to its current ban on crypto-currencies, the Central Bank of Nigeria (CBN) says their enormous capacity to aid terrorism and money laundering makes revoking the decision in the near future impracticable.

According to the apex bank; “Due to the fact that crypto-currencies are largely speculative, anonymous and untraceable, they are increasingly being used for money laundering, terrorism financing and other criminal activities.”

Shading further light on its circular that has barred Deposit Money Banks (DMBs) from transacting business with individuals and organizations dealing in crypto-currencies, CBN said; “Small retail and unsophisticated investors also face high probability of loss due to the high volatility of the investments in recent times.”

Furthermore, the apex bank said; “The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians (including the youth population) from the risks inherent in crypto assets transactions, which have escalated in recent times, with dire consequences for the integrity of the financial system and financial stability.”

A statement by CBN’s Acting Director of Public Communications, Mr Osita Nwanisobi in Abuja said clarifying the decision was necessary given the different reactions that have trailed the decision in the public space.

Nwanisobi said most of the reactions indicate the urgent need to offer further explanations of the apex Bank’s position to the general public on crypto-currency transactions in order to correct growing misgivings about the current restrictions.

The CBN spokesman said for those not conversant with the universal dimension of the business, “Crypto-currencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography”, adding; “Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation.

“While there are a number of crypto-currencies now in circulation, Bitcoin was the first to be introduced in 2009, and now accounts for about 68 percent of all crypto-currencies.

“As regards our recent policy pronouncement, it is important to clarify that the CBN circular of February 5, 2021 did not place any new restrictions on crypto-currencies, 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 crypto-currencies.”

It also stated that; “Indeed, this position was reiterated in another CBN Press Release dated February 27, 2018.It is also important to note that the CBN’s position on crypto-currencies is not an outlier as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use.”

Insisting that current realities and analyses on crypto-currencies make it uncomfortable at this time for the Nigerian economy, the CBN said everything thing would be done within its regulatory powers to enlighten and educate Nigerians to desist from its use and protect our financial system from activities of fraudsters and speculators.”

The apex bank also said in the statement that it action is not isolated with countries like China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have already all placed some limitations on financial institutions facilitating crypto-currency transactions.

The statement said; “In China, for example, crypto-currencies are completely banned and all exchanges closed as well. Banks and other financial institutions are not allowed by law to transact or deal with crypto-currencies. 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 crypto-currencies as illegal because they are not issued by any recognized 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. Even famed investor, Warren Buffett has called crypto-currencies “rat poison squared,” a “mirage,” and a “gambling device.”

The statement noted that Mr Buffett described crypto-currency as a “gambling device” given that they are “mostly valuable because the person buying it does so, not as a means of payment; but in the hope they can sell it for even more than what they paid at some point.”

It further stressed that; “During an online forum hosted by the Davos-based World Economic Forum few weeks ago, Andrew Bailey, the Governor of the Bank of England, highlighted the extreme price volatility of crypto-currencies as one of the biggest flaws and explained that this flaw makes it impossible for them to be used as a lasting means of payment.

“Have we landed on what I would call the design, governance and arrangements for what I might call a lasting digital currency? No, I don’t think we’re there yet, honestly. I don’t think crypto-currencies as originally formulated are it,” he said.

“It is not surprising he would take that position because, Bitcoin, the best-known crypto-currency, hit a record high of $42,000 per unit on January 8, 2021, and sank as low as $28,800 about two weeks later. This is far greater volatility than is found with normal currencies.

“Let us now turn to some of the justifications for CBN’s recent policy reminder. A perfunctory reflection on the definition of crypto-currencies can already reveal several problems. First, in light of the fact that they are issued by unregulated and unlicensed entities, their 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.

Strongly maintaining that “the use of crypto-currencies in Nigeria are a direct contravention of existing law”, the apex bank declared that its actions were not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.

“To the contrary, the Nigerian payment system has evolved significantly over the last decade, leapfrogging many of its counterparts in emerging, frontier and advanced economies propelled by reforms driven by the CBN”, the statement said.

The CBN therefore solicited understanding and support from banks and all stakeholders in its sustained efforts and moves to protect the country’s financial system from activities of fraudsters and speculators.