Unnecessary Furore On CBN’s Directives To Nigerian Banks On Cryptocurrencies

By Ademola Owolabi

Some days ago, the Central Bank of Nigeria directed Deposit Money Banks (DMBs) to stop dealing in cryptocurrencies. The directive generated and is still generating widespread reactions from Nigerians. The federal lawmakers have joined and had summoned the Governor of the CBN on the issue. I am also aware that some group in exercise of their right have instituted a suit before the Federal High Court seeking to upturn the directive.

As it is with communication, truth is the first casualty. The news making the round is that the Central Bank has banned cryptocurrencies. Some people have accused the CBN of insensitivity to the plight of Nigerians who have been left uncatered for by the government. They further argued that since government failed to provide employment, cryptocurrencies have become a saving grace for Nigerians. Another set of people queried the power of the CBN to ban cryptocurrencies contending that it was the Securities & Exchange Commission that is statutorily empowered to regulate cryptocurrencies.

While not holding fort for the CBN, it is important to analyse the issue critically, devoid of emotion and name-calling.

Firstly, what was the CBN’s directive to the Deposit Money Banks? On 5/2/2021, the CBN directed the DMBs to stop transacting in cryptocurrencies. The directive was more of a reminder as the CBN has earlier on 12/1/2017 and 27/2/2018 directed the Banks to stop dealing and transacting in or with cryptocurrencies.

Cryptocurrency is a global encrypted digital asset which is a medium of exchange and ownership records are stored in a ledger existing in a form of computerized database with cryptographically secured transaction records. (Wikipedia).

It is not created by the CBN and same is not within the purview of CBN regulatory power. It is therefore wrong to peddle or believe that the Central Bank of Nigeria have banned or could ban cryptocurrencies. However, the CBN is the apex regulatory body for the banking institutions. Both the Central Bank of Nigeria Act and the Banks & other Financial Institutions Act, LFN 2004 are clear about the regulatory roles of the Central Bank. For example, Section 1 (1) of BOFIA provides: The Central Bank of Nigeria shall have all the functions and powers conferred and the duties imposed on it under the Act, subject to the overall supervisions of the Minister. These powers include: power to license Banks, to hold minimum capital ratio, examination of banks’ books, removal of Banks’ directors and even taking over of the Banks. Section 2 of the Central Bank of Nigeria Act saddles the CBN with powers and duties to ensure: monetary and price stability, issuance of legal tender currency in Nigeria, external reserves, promotion of sound financial system and as the Banker of the last resort in Nigeria.

It is the above powers that place the banks under the Central Bank of Nigeria. The CBN therefore is statutorily empowered to supervise and direct the banks so as to ensure sound financial system in Nigeria. It is in the exercise of this power therefore that the Central Bank directed the banks to stop dealing with or transacting in cryptocurrencies. The CBN did not ban cryptocurrencies but has directed the bank to stop dealing with same. The powers to maintain sound financial system is a wide one and left the discretion of what is unsound to the CBN.

For example, if the banks are unhealthily exposed to the vagaries of unregulated cryptocurrencies or digital asset; the failure of cryptocurrencies may spell doom for the banking system and in extension, the entire nation as billions of money sunk into cryptocurrencies will be lost. It was the unhealthy margin facilities that led to banks’ failure of 2008 and the creation of the Asset Management Corporation of Nigeria (AMCON). A progressively responsive CBN should not wait until the bubble burst before employing reactionary approach to a looming danger. Cryptocurrencies is not regulated by any nation-state as at today. It may not be different from Ponzi scheme or other pyramid scheme of Nospecto or MMM which left several Nigerians in penury.

It is in this light that the CBN intervention should be viewed. Since cryptocurrencies has positioned itself to be outside national regulation, it should also devise a means where its promoters and subscribers can utilize its service outside the traditional banking system. What the CBN is avoiding is a situation where good money will purchase bad products with its negative consequences.

In the traditional national backed currencies, value is determined by national reserves of each country. This appears to be different with cryptocurrencies as there seems to be no known methods of determining value, it is encrypted! It might as well be a well-oiled scheme waiting to burst.

Considering the power granted the CBN, the apex bank cannot regulate cryptocurrencies. It lacks both the capacity and statutory powers to so do. However, as the saying goes: those that have dogs need not bark; the CBN can warn, advise, direct and compel banks on dealing in cryptocurrencies which is exactly what the Bank has done.

We have not examined the rationale behind the directive. We are more concerned with what exactly did the CBN do and whether it has the power to so do. Looking at the fact and the laws, it is quite clear that the CBN did not ban cryptocurrencies. It rather seeks that banks under its supervision should stop dealing in cryptocurrencies; a directive backed by law.

Ademola Owolabi, 08131139393