Cryptocurrency: 5 reasons CBN is banning virtual money

On Friday, February 5, 2021, the Central Bank of Nigeria (CBN) announced that it is prohibiting banks and other financial institutions from using their platforms to facilitate trading in cryptocurrencies.

The ban on virtual money trading in Nigeria, Africa's biggest market, elicited plenty of reactions from social media users.

The apex bank has issued a detailed follow-up statement on why it is going hard on cryptocurrency use.

Below, we provide a summary of what was a lengthy, rambling statement signed by Osita Nwanisobi, Acting Director of Corporate Communications at the Central Bank:

1..This ban isn't a new one

The CBN says it doesn't quite get the hullaballoo that has trailed its recent directive because similar ones were issued in 2017 and 2018.

"The CBN circular of February 5, 2021 did not place any new restrictions on cryptocurrencies...all banks in the country had earlier been forbidden through CBN's circular dated January 12, 2017 and reiterated in another dated February 27, 2018," the apex bank says.

2..Other countries have done it, so Nigeria isn't doing anything new or extraordinary

The CBN says that its latest position on cryptocurrency is not an outlier "as many countries, central banks, international financial institutions and distinguished investors and economists have also warned against its use."

The CBN lists some of these countries as China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Saudi Arabia, Nepal, Cambodia, among others.

These countries "have all placed certain level of restrictions on financial institutions facilitating cryptocurrency transactions," the statement reads.

3..Cryptocurrency is too volatile and speculative..in fact, it's gambling by another name

The central bank quotes investor Warren Buffet as describing cryptocurrency as a "gambling device."

The CBN also highlighted extreme price volatility of cryptos. "Bitcoin, the best known cryptocurrency, 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," the regulator explains.

4..Cryptocurrency is used for illegal activities like drug peddling

The CBN says that crypto use is so opaque that it has become well-suited for "conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion..in fact, the role of cryptocurrencies in the purchase of hard and illegal drugs is well known."

5..CBN says this is not a war against Fintech or tech startups in Nigeria

The statement from CBN adds that "our actions are not in any way, shape or form inimical to the development of Fintech or a technology-driven payment system."

The regulator bank says on the contrary, it has backed reforms that have birthed payment startups, online banking, mobile money operators, electronic payments etc.

CBN also says crypto use goes against the CBN Act (2007) of the Federal Republic of Nigeria.

"The use of cryptocurrencies in Nigeria are a direct contravention of existing laws," the apex bank adds.