The Central Bank of Nigeria ordered banks and financial institutions to identify and close cryptocurrency entity accounts with “immediate effect” on Friday, February 5.
The central bank warned those who did not implement the directive that they would face “severe regulatory penalties” in the letter that circulated to the parties concerned.
Nigeria’s hostility to cryptocurrencies is not new as the country issued a warning in 2017 regarding the risks associated with trading in crypto.
While initially omitting a full explanation for this decision, the Central Bank eventually released a statement claiming that cryptocurrencies pose a threat to the Nigerian financial system.
“The recent regulatory directive has become necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto asset transactions,” the central bank said in a statement.
They even referred to a quote from Warren Buffet who called Bitcoin “squared rat poison” and “gaming device” in their explanation that they don’t believe it is being used for genuine payment purposes.
The statement particularly highlighted the dark side of cryptography and its use for money laundering, terrorist financing and drug trafficking due to its anonymous nature.
The bank insists this position is not new but rather a reiteration of their 2017 tenure. However, cryptocurrency exchanges have been operating in the country since 2017, with no issues until this news was released. declaration.
Exchanges such as Binance and Luno have been working with clients to ensure they are not severely affected by this sudden change.
Use of crypto in Africa
While the whole continent cannot be considered as one entity, the problems present in many African countries are solved by the use of cryptocurrencies. The two big ones are monetary instability and remittances.
Currency instability has hit different countries on the continent at different times and cryptocurrency has found its place as an alternative form of payment, savings and investment for those with volatile local currencies.
Zimbabwe, the country best known for its hyperinflation and currency collapse, has seen growth in cryptocurrency trade and payments, particularly Bitcoin.
By having invested in crypto, the risk of losing all of your personal wealth due to inflation or collapse is removed. While the unstable nature of currencies like Bitcoin and Ethereum, means that they could also lose value, this offers another option.
Remittances are the second area in which cryptocurrencies are thriving across the continent. Due to weak economies, lack of jobs and persecution, many people work outside their home countries. As a result, sending money home is one of the most important financial transactions in African countries.
While there are ways to send this money across borders, these were often expensive and dramatically reduced the amount returned to family. Cryptocurrencies have helped people avoid these high fees and conversions, making them a bit simpler but also a lot more beneficial as a way to send money.
Not without problem
This does not mean that there are no risks and problems when it comes to cryptocurrencies on the continent. In line with the use of cryptocurrencies in the rest of the world, banks in African countries and governments have had to deal with its use for criminal purposes and a growing concern for Bitcoin scams.
Recently, South Africa grabbed the headlines due to its largest Ponzi cryptocurrency program, Mirror Trading International. The company alleged that it was trading with a sophisticated “bot” using AI which resulted in a great return on investment for those who signed up, but eventually the system collapsed and its leader disappeared with the ‘money.
In other regions, similar pyramid schemes and outright scams attempting to gain access to cryptocurrency accounts have left some people robbed of their money with no recourse.