Reasons why CBN banned Cryptocurrency in Nigeria


    The central bank of Nigeria (CBN) on the 5 th of feb 2021 gave out a letter addressing banks and financial institutions saying that using of cryptocurrencies and using it for transactions should cease with immediate effect. CBN further proceed to give the instruction to all banks and financial institutions to fetch out the individuals who operate and transact in cryptocurrency and block or suspend their accounts.

       The message elicited major concern among people with worries about the drastic negative impact it could cause on the fast raising cryptocurrency innovation or market.

      In response, on the 7 th of February 2021 the CBN issued a press release addressing the earlier and giving the reasons for their ban on crypto transactions by banks and other financial institutions. 

         What are the reason they stand to defend the ban on cryptocurrency transactions?
 

      In the statement release by CBN it is stated that cryptocurrencies are issued by unlicensed and unregulated bodies and as such, the cryptocurrencies in Nigeria contradicts to the existing laws as they are not legal tender. It also identified the hidden and anonymity of crypto as an issue. It mentioned that hidden identity for  such as giving financial support to terrorist and money laundering. Another reason is that the volatility of cryptocurrencies which they said has caused instability of financial system in many countries.


SEC’s Decision to Regulate Cryptocurrencies
 

In September the SEC gave a press release announcing it decision to regulate “digital assets” which cryptocurrencies is not excluded. In connection with the CBN’s directive, the SEC received several questions to clarify if there was contradiction in the policies of the two body regulators.
      

 Subsequently, in February the SEC gave a press statement saying that it will join hands with the CBN to look into and better understand the identified risk of cryptocurrency to be sure that the right decision regulation is put into place if cryptocurrency deals are to be allowed in the future.


The Effect of Restriction on Cryptocurrency Transaction in Nigeria

 

    Nigeria as a country been the second largest bitcoin market in the world with not less than $500,000,000 worth of bitcoin transactions in the recent 5years back. The CBN’s directive on crypto trading will reasonably have an effect on the crypto market in the country as it will make traders not be able to buy or sell cryptocurrency with Nigerian banks issued debit or credit cards.
   

    It appears that some exchanges have found an alternative way of transaction know as peer to peer trading which lets people to buy or sell cryptocurrencies from traders as opposed to the exchanges. In obedience to CBN directive banks have blocked many accounts of individuals with outflows and inflows
of crypto exchanges. No certain info about the deactivated account would be opened or not.

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