CENTRAL BANK AND CRYPTOCURRENCY BAN - Dr Muiz Banire(SAN)
The recent development in the banking industry has called for this intervention. Although it is a matter about which I cannot lay claim to any competence, as a pedestrian in the area, I observe so much policy summersaults and inconsistencies that tend to suggest confusion as a result of experimentation by the institution involved. This is in the management of the economy by the apex bank, the Central Bank of Nigeria (CBN). Not quite long ago, the CBN stopped payment of dollars to those who transferred funds from abroad into the country, or whose receipt in the country was denominated in foreign currency. This discouraged a lot of people from bringing in their foreign funds. I am aware of a client’s transaction that could have let into the country the sum of not less than $18 million but which had to be diverted for payment into a foreign account, simply on the ground that the apex bank’s policy mandates the exchange of the sum for naira if transferred into Nigeria.
Although there seems to be recapitulation in respect of this policy vis-a-vis transfers recently, I doubt if this covers receipt or payment for local transactions in which the recipient wants the sum in the foreign currency of transfer. Recently, again, the CBN issued another directive mandating local currency exchange entrepreneurs to pay in the currency in which the sum abroad was deposited. Initially, I believed this was fair but, on a second thought, it occurred to me that the source of meeting the demand was not only unavailable but not sustainable.
In the circumstances, this would further put pressure on the few available foreign currency circulating in the country. Little wonder the continuous fall of naira’s value. The further implication of this policy is the elimination of some of the local entrepreneurs and their employees, thereby heightening the degree of unemployment in the country with the consequential effects of social dislocation and insecurity in the country. Another strange policy dished out by the Central Bank is that relating to exporters.
As characteristic of the apex bank, it has just issued another draconian decree to money deposit banks to stop banking relationship with exporters that fail to remit proceeds of their trade into the country. The question is, can a person be compelled to repatriate proceeds of his investment into the country when he was not sponsored by the apex bank nor the government? This is a topic for another day, but what if the exporter decides to use the proceeds to meet his other foreign commitments like medical needs, children’s school fees or even to pay mortgage charges abroad? Besides, some foreign transactions go bad and consequently fail to attract any income; for example, so many wood and food businesses fail abroad where they fail to meet the required standard of the country of importation, thus earning nothing. Are they to be crucified for failure to remit in such circumstances? These and many more shall be agitated in future discourses.
The latest onslaught by the apex bank, and with which we are primarily concerned here, is that on cryptocurrency in which, again, the CBN is clamping down on operators. In its usual characteristic of bullying, decree of closure of accounts of operators of such traders in the currency has been pronounced by the apex bank. For a brief understanding of cryptocurrency and how it operates, a cryptocurrency has been defined or described as a digital currency that can be used to buy goods and services but which uses an online ledger with strong cryptography to secure online transactions. These kinds of currencies are said to be bought and sold on ‘Exchanges’ and have been described or classified to be more of a speculative asset than a currency. The basis of this is due to its volatility. An example is said to be what is popularly known as ‘bitcoin’.
Cryptocurrencies are also said to use decentralised technology to let users make secure payments and store money without the need to use their name or go through a bank. They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders. Despite its volatility and seemingly amorphous nature, it is still an asset or business that can be regulated by regulatory authorities as seen in the United States, United Kingdom and other jurisdictions except for China, where it is said to be completely banned, and India, where its operations have been strictly made difficult, if not impossible.
Although I am not versed in this area of cryptocurrency, as a matter of general knowledge, the immediate impact of the CBN policy is again to displace some traders from their desks. The multiplier effect of this ranges from denying Nigerian citizens the opportunities of participation in the trade, earning livelihood and also reaping bounties from their investments. This will not only lead to loss of jobs but create insecurity and continually render our financial terrain unpredictable.
I am not unaware of the rationale of the apex bank, which truly is outside its regulation. Other apex banks abroad are already subjecting their legal framework to the accommodation of the currency. Undoubtedly, we all know it is a volatile scheme but that is left to the investor to take the risk. Beyond all the above, my concern is the level of interference of the apex bank with not only the money deposit banks’ operations but even business ventures. Public perception of the scenario is beginning to see the deposit banks as mere appendages of the apex bank. This is not good for the economy. Further, the deposit banks are already assuming the status of a virus whose fates are to wake up daily to multiple directives from the apex bank to the extent that they cannot guarantee the customer any state of affairs. This uncertainty is ultimately transferred to the entrepreneurs. If cryptocurrencies are condemned for volatility, it seems the Nigerian banking regulatory system is becoming more volatile. This definitely is not good for business and, by extension, the economy.
Additionally, loss of jobs continues, with unemployment soaring, and insecurity elevated due to this unjustifiable intervention in the operation of the money deposit banks and businesses. Another huge loser, according to another analysis, is the Federal Government itself in its tax intake arising from cryptocurrency transactions.
It is said that before the ban of cryptocurrency in Nigeria, Binance Corp had several accounts with the commercial banks in Nigeria and was the foremost crypto Exchange in the country. Its mode of operations was said to be very similar to that of the stock exchange in any market and, to buy and sell cryptocurrency within Nigeria, operators of Nigerian accounts would pay directly from their accounts to Binance who would immediately credit the wallets of the seller or buyer and the crypto equivalent would be transferred to the beneficiary. Before the ban, commercial banks, through transactions on Binance, were said to be earning over N200 billion per annum, just for transaction costs, while government was said to earn like N50 billion in tax on the transaction, which qualifies as 25% of such transactions aside from levies from the CBN. Binance Open Exchange in Nigeria was rendered inactive and trading could no longer be done openly, with the attendant loss of revenue to government, as these operators do not completely fold up, they only seem to stop operating openly but do so clandestinely.
While it might seem that commercial banks must have been losing huge revenue accruing to them before the ban, their silence in the face of the ban seems to suggest that they still continue profiting from the clandestine operations and the open tax that was being recorded by the government may be the only thing that is no longer available. It seems the most unfortunate is that the Nigerian government is just kept out of the transactions, which are well regulated in other environments and can still be regulated in Nigeria if the CBN minds its business and allows bodies like the Securities and Exchange Commission do their jobs.
Cryptocurrency transactions seem to be easy to regulate from the experiences from other climes and the apex bank in Nigeria may have to pay more attention to its statutory mandate than dabbling into all sorts issues including its recent unfortunate foray into freezing accounts of protesters. In fact, a section of the people even suspect its’ target is at the protesters and others of their ilk. Binance Exchange has been said to be well and alive but no longer with any operating accounts and, together with the banks, has actually increased revenues in the past few days after the ban. According to an analyst, “with this, the government has absolutely lost controls at all levels! Binance doesn’t pay taxes any more as they have been banned out of existence, and the commercial banks don’t have to pay taxes on the transactions because the exchange didn’t take place, technically!”
An intriguing development, which might be showing that we probably are not thinking in this country is the recent investment of Tesla which has just publicised a purchase of $1.5 billion worth of Bitcoin. Tesla also announced that it will now start accepting bitcoin as payment for its products. This is a huge investment with a tremendous impact on how transactions are done in recent times and might be shifting the scale in favour of the use of cryptocurrencies further. Everyone knows that Elon Musk, the founder of Tesla, is the world’s richest man and this decision of his organization is a big endorsement of the credibility of cryptocurrencies. It has conferred an international recognition of a substantial value on cryptocurrencies as a medium of exchange. It is when Nigeria banned the use of cryptocurrencies that the price of Bitcoin has been reported to reach the highest ever which is said to be above $45,000. Understandably, the CBN has been reported to have argued that the essence of its regulation is to prohibit or control criminal activity with the use of cryptocurrencies. Yes, we agree that the notoriety of online fraud in Nigeria has assumed an alarming dimension but other countries also face similar challenges but do not opt for a complete throwing away of the baby with the bathwater.
Other countries manage to control and monitor these transactions thereby recording and preserving the advantages to the benefit of their economies and citizens. The UK, the European Union and Switzerland have taken steps in this direction which Nigeria can copy and even attempt to perfect in controlling criminal activities in this area of economic operations. The other argument relating to the speculative risk of bitcoin as an asset might not seem to be altogether correct to justify an intervention by the CBN. It seems the Securities and Exchange Commission might have more to do in this regard than for the apex bank to jump into the foray. The important thing to do is to have appropriate measures put in place as a fragile economy like ours should not be regimented to what is physically controllable with a total distancing from online transactions the kind that cryptocurrencies guarantee and the advantages of which are more than the disadvantages. There is no area of human activity that is not subject to abuse and the way to go cannot be a total ban but a well-scripted control mechanism faithfully implemented. The authorities may need to have a re-think on this except if it has peculiar motive