The Central Bank of Nigeria (CBN) has lifted its previous prohibition on cryptocurrency transactions. This move, unveiled in a circular dated Dec. 22, 2023, signifies a significant shift in Nigeria’s stance on the burgeoning crypto market in the country.
The relaxation of the ban was signed into effect by Haruna Mustafa, the director of the financial policy and Regulation Department at CBN.
CBN issues crypto guidelines
The circular outlines the procedural guidelines for banks and financial institutions to facilitate crypto transactions, focusing on account openings, foreign exchange (forex) inflows and trade for firms dealing with crypto assets.
This action follows the country’s Financial Action Task Force’s 2018 update to Recommendation 15, which called for regulating Virtual Asset Service Providers (VASPs) to counter potential misuse for money laundering and terrorism financing.
Consequently, the Money Laundering (Prevention and Prohibition) Act of 2022 now recognizes VASPs as financial institutions.
In May 2022, Nigeria’s Securities and Exchange Commission then issued new rules on Digital Assets and VASPs, providing a structured, regulatory framework for their operations within the country.
The ban on crypto trading was instituted in February 2021 due to concerns about potential money laundering and terrorism financing risks associated with cryptocurrencies.
It was seen as a significant hindrance to the rapidly growing Nigerian crypto community, which previously enabled crypto-to-fiat deposits and withdrawals through bank accounts.
When the policy was enacted, numerous Nigerian businesses faced challenges, with some reportedly relocating their operations abroad or closing altogether.
Banks still not allowed to transact crypto
The CBN’s initial banning order had necessitated crypto users in Nigeria to resort to peer-to-peer trading to bypass the financial sector. A report from Chainalysis revealed that despite the ban, cryptocurrency transaction volumes in Nigeria escalated by 9% year-over-year, amounting to $56.7 billion between July 2022 and June 2023.
This new directive marks a promising turn for Nigeria’s tech-savvy population, who have shown a keen interest in embracing digital currency. Investors in Nigeria can now handle crypto-centric transactions through their bank accounts, simplifying their ability to trade and engage with digital assets across various exchanges and payment services.
However, the updated guidelines, which supersede those of January 2017 and February 2021, still continue to prohibit banks and financial institutions from trading or transacting in virtual currencies independently, with the CBN insisting that compliance to the new guidelines is mandatory and immediate.
Nigeria’s complex dance with crypto
Nigeria has had a complicated recent history with crypto. On Aug. 9, the Association of Bureaux De Change Operators of Nigeria (ABCON), a key player in the naira-dollar exchange framework, called for a ban on Binance.
The association cited Binance’s involvement as causing undue pressure on the local naira currency, sentiments that mirrored a statement issued by Nigeria’s Securities and Exchange Commission (SEC) in June, after flagging Binance Nigeria for operating illegally in the country.
But even as Nigeria banned crypto transactions, and exchanges like Binance, it went ahead to pioneer a central bank digital currency (CBDC) known as the eNaira.
As reported by crypto.news in August, Nigeria was one of a handful of emerging economies leveraging their compact size and less complex financial systems to achieve faster adoption rates of government-backed digital currencies.
However, a study by CoinGecko at the time revealed that the uptake of the eNaira had been slow, with only about 6% of the population adopting it within the first three months of 2023.
Additionally, some critics of the project suggested that the eNaira could threaten Nigeria’s financial stability. However, the CBN issued an official statement on Oct. 9, refuting those claims.
The bank further clarified the distinction between cryptocurrencies like Bitcoin and the eNaira, in a comprehensive 300-page book titled “Economics of Digital Currencies: A Book of Readings”.
The publication delved into aspects such as potential impacts on deposit liabilities, regulatory concerns, social welfare, and public sentiment regarding CBDCs.
