Banking Law

CBN Ban On Crypto Currency: The Legal Implications

The ban on the use of cryptocurrency by Central Bank of Nigeria has obviously generated a lot of negative reactions from Nigerians especially the crypto investors. The ban seem to resist both cogent explanation and clear implications which leaves room for different interpretations and speculations that has culminated in panic and confusion.

The troubled Nigerians wonder if this prohibition means that owning an asset in crypto currency is illegal or if trading crypto puts them in the same category with drug/human traffickers or fraudsters. More so, the ban seem to raise doubt in the heart of Nigerians about governemnt’s intentions towards the citizenry.

This article seeks to clarify notions about cryptocurrency, resolve some of the issues raised and explores the status of law on the ban.

What is Crypto Trading?

It’s simply buying and selling of cryptocurrencies for the purpose of making profit. Like every other trade, crypto traders buy cryptocurrencies at low prices and sell when the prices go high. For instance a cryptocurrency, say, Ripple (xrp) maybe bought at 420 naira each and sold at 500 naira. One intriguing thing about these currencies is that the prices go up and down like the unsteady tides of the ocean; so a smart trader only have to wait for the price to fall before he buys with the belief that it will rise again.

There are hundreds of cryptocurrencies as well as many crypto (digital) market, platforms or exchanges, where these currencies are bought and sold. This mean you need not look for where to trade (buy and sell) your crypto since there are millions of traders from all over the world trading 24 hours a day and 7 days a week on these digital markets.

It is near impossible to know the exact number of Nigerians that are into crypto trading because exchanges keep having thousands of new registration of Nigerian descent every single day. For instance, on Paxful (a crypto market platform), there are over a million registered accounts from Nigeria, making up 25% of its customer base. The number of Nigerians trading crypto therefore is in millions especially if you add all the registered accounts from other crypto markets/platforms such as Binance, Bundle, Luno, Trust wallet etc. And according to UsefulTulips,  Nigerians traded over 32.3 million dollars worth of crypto on this platform in 2020 alone.

In Nigeria it seems educational qualifications is no more a guarantee to get a job. It seems difficult, also, to thrive in Nigeria especially if you are a common man, with no inheritance, who knows neither “anybody” nor someone who knows “somebody”. Hence, it’s understandable why crypto trading is regarded as the way forward for the teeming young Nigerians; in crypto trading you are not asked who recommended you or where you come from before allowed to trade and the market isn’t determine by political parties or decisions from experts who seem distant from reality of things in the country. The currencies are decentralized; it means their prices and usage are not determined by a single person or persons but by all who have a stake in them.

Is Crypto Trading Risky?

Crypto trading is super risky especially if you are too anxious to make quick money. You can make huge profit or loss depending on the trend of the market (up or down) and how much you have invested.

CBN Stance On Crypto Currencies

In their  letter dated Feb/5/2021 and referenced BSD/DIR/GEN/LAB/14/001, CBN ordered all Deposit Money Banks (DMBs), Non-bank Financial Institution (NBFIs), Other Financial Institution (OFI) and members of the public to desist from dealing in cryptocurrencies or facilitating payment for cryptocurrency exchanges. They also urged all DMBs,  NBFIs and OFI to identify a person or institution dealing in cryptocurrencies and close their accounts immediately. Lastly, they threatened sanction on whoever will breach the directives.

CBN feel justified by their action because, in their assessment;

  1. Cryptocurrencies are issued by anonymous,  unregulated and unlicensed entities
  2. the use of cryptocurrencies in Nigeria contravened existing law since they are not legal tender
  3. The lack of KYC (Know Your Client) makes it susceptible to illegal use such as money laundry and financing of terrorism
  4. The volatility of cryptocurrencies threatens the stability of financial systems.

The effects of this prohibition is that you won’t be able to buy crypto directly from your bank neither will you be able to cash out, from exchanges, to your bank directly; secondly some individuals and institutions may decide to sell off their crypto, their assets, and close their  accounts with the exchanges out of panic and fear of being labelled criminals.

Are Crypto Traders Now Criminals or Breaking Any Economic/Finance-Related Law?

Since crypto trading is not markedly identify with fraud, laundry and misappropriation, it seems safe to assume that those who engage in it are not breaking any law and therefore should not be intimidated. Indeed, there is no feature of crypto trading that causes friction between and among persons and traders are very much aware of the risk involved.

Mostly, actions in themselves are neither right nor wrong, good nor bad, legal nor illegal. These values are determined by the conscience of those who engage in the act or by certain written or unwritten laws  (either invented by man or inherent in nature)

Sequel to  the given above, CBN ought not to make Nigerians  crypto traders feel guilty for an act that is morally certified and which the law seem hesitant to acknowledge as crime.

Its understandable that the government, through CBN, is concerned about the vulnerability of her citizens. However, an outright ban, the order for closure of account and the threat by CBN seem extreme and an infringement on the rights of sane rational Nigerians struggling to survive bad economy. CBN now act like an insensitive careless parents who, despite not offering their wards the alternative of living, restrain them from fending for themselves. At best, they would have staged, consistently, informative programs to expose the risk and dangers associated with cryptocurrency.

To ban crypto just because it is issued by anonymous, unregulated and unlicensed entities is no more than banning people from breathing because you are unsure where the air is coming from and I really wish the CBN can explain what they meant when they said that cryptocurrency is not a legal tender because cryptocurrency seem to have value and is accepted as means of payment by many all over the world; it doesn’t necessarily have to be recognised by Nigerian authorities to be validated; money laundering and terrorism have been practiced long before the inception of cryptocurrency; it will not be logical therefore to link them, necessarily, to it. Lastly CBN will have to explain, in clear terms, what really determine the stability of the financial system except their position is that Nigerian financial system has been stable until Nigerians started crypto trading.

Law is meant to keep peace and order in the society and not the opposite. People often protest and oppose a new order if it’s absent moral and rational justifications and more importantly if there are no consultation, dialogue and empathy before the order is given (given that we are in a democratic society).

Written By George Udoh