Business

Why Nigeria May Not Adopt Bitcoin As Legal Tender

Published

2 years ago

June 3, 2022

Editor

In April 2022, the Central African Republic became the first African country to adopt Bitcoin as a legal tender.

The nation’s parliament recognised Bitcoin and other forms of cryptocurrency as national tender, becoming the second country in the world to officially legalise crypto as legal tender.

In September 2021, El Salvador became the first country in the world to legalise cryptocurrency as a form of payment, allowing consumers to use crypto in all transactions. Since BTC was founded in 2009, ushering in a wave of different other cryptocurrencies, it has garnered good and bad attention from around the world.

Yet, its adoption, either legally or illegally, has continued to soar, forcing global businesses to begin to consider it as a form of payment. Recently, Emirates airline joined a growing list of companies to accept BTC as form of payment.

A report by the World Economic Forum disclosed that there were 18,142 cryptocurrencies, 460 crypto-exchanges, with a market cap of about $1.7tn. According to it, $91bn worth of cryptos were traded every 24 hours.

In Nigeria, crypto is illegal because of a February 2021 Central Bank of Nigeria ban on it. Regardless, Nigerians have continued to adopt it in transactions.

A Chainalysis report in 2021 revealed that the crypto market in Nigeria and other African countries grew by 1200 per cent in one year. It added that Africa had the third-fastest growing crypto economy in the world.

Another report by Chainalysis noted that Nigeria was the sixth leading country in the world in terms of crypto adoption despite the CBN’s ban on it.

In 2021, Nigerians traded at least N316.9bn worth of Bitcoin, with over six million crypto transactions and 16,000 transactions per day on Paxful. The peer-to-peer platform revealed that Nigeria was the number one nation on its platform.

However, experts believe that nations have to be cautious regarding the adoption of BTC and other forms of crypto as legal tender. They stated that BTC wasn’t designed to become a legal tender.

According to them, Nigeria might someday consider BTC as a form of payment, but it would never replace the Naira. They added that using it as Naira would contravene the constitutional purview of the CBN.

They further stated that the nations that had accepted or thinking of accepting crypto as a form of payment were those on the brink of economic collapse and Nigeria wasn’t necessarily one.

The Founder and Coordinator, Blockchain Nigeria User Group, Chimezie Chuta, said, “This will be contrary to the constitutional provision of Nigeria’s laws. Because explicitly, the CBN is the only institution empowered to issue a legal tender for the country.

“And currently, it is the Naira that has been issued, so for you to have an alternative unregulated currency to become a legal tender has to be legitimised by altering the constitution. That is something I do not see happening in a long time in Nigeria.

“Bitcoin can be recognised as a currency of payment but not a legal tender. Although it might become possible for you to use BTC to make transactions that are valid in the eyes of the law, but this is not something I see happening anytime soon because it is very clear that the central bank does not want the infiltration of unregulated kinds of payment instrument in Nigeria.”

According to him, BTC was perceived more as a commodity than an instrument of payment presently, and making it a legalised form of payment would be an encroachment on the purview of the CBN.

Chuta added, “Most countries that are adopting BTC are those that have hit the bottom like Venezuela and El Salvador.

“El Salvador didn’t even have a national currency; they were using the dollar. They could bring in BTC because they didn’t have a national currency. And in the other country, their economy was so bad that they had to allow BTC to become a national currency. Nigeria does not want to go in that route because they do not see themselves in that category yet.

“From a private perspective, one would have thought that what the CBN could have done is not necessarily legalise BTC but have reserve assets in BTC as a form of security against the continuous depreciation of the Naira. BTC has shown that it has a 200 per cent annual return since it has been in existence for a decade.

“If you compare this with the percentage value of the Naira, you would discover that it would have made some sense if some of our reserve assets are kept in a futuristic asset like BTC. That is the area I will support, but I do not think I will want Nigeria to turn BTC into a legal tender.”

The President of Stakeholders in Blockchain Technology Association of Nigeria and General Secretary of Blockchain Industry Coordinating Committee of Nigeria, Senator Ihenyen, said he was shocked when CAR announced the adoption of BTC as a legal tender.

According to him, BTC was not the solution to economic problems faced by countries and BTC wasn’t designed to replace national legal tenders.

He said, “CAR’s adoption of bitcoin as a legal tender came as a big surprise to me. Though I understand that decentralised currencies or cryptocurrencies will increasingly have a role to play in finance and payments, adopting bitcoin as a legal tender, in my opinion, is not really going to be the answer to the economic problems faced by CAR.

“Not even Satoshi Nakamoto, BTC’s inventor, expects that its electronic cash system would be adopted as the legal tender of any nation, including El Salvador. Nigeria is no exception. The primary idea of BTC is not to replace legal tenders such as the CFA, the dollar, or the Naira. Rather, it is to essentially enable peer-to-peer transactions in any network or ecosystem that wishes to adopt it as a means of exchange.

“In other words, BTC can operate side by side with legal tenders such as a central bank or reserve bank currencies, as well as central bank digital currencies such as the eNaira. Besides, considering the huge BTC adoption in Africa, including Nigeria, the more you attempt to stifle it or resist it, the bigger it becomes.

“This is because BTC and other similar cryptocurrencies thrive in a decentralised space where there is no central authority. So, regulators must see these crypto innovations as complimentary, thus proper regulations should be put in place to address the unique risks they may bring. That’s what regulation is all about.”

According to him, the decentralised nature of cryptocurrencies, including BCT, should make Nigeria consider exploring them for economic growth and global competitiveness since adoption had grown and would only continue to grow.

Ihenyen said that while the adoption of BTC wasn’t a possibility, Nigeria should be considering how its innovators, policymakers, and regulators could work together to ensure that the nation benefitted from the opportunities the crypto economy provides.

He stated that the Securities Exchange Commission had taken the first step to recognise digital assets in Nigeria.

He added that there was a need for a safe and sound financial system, and crypto had the tendency to distort monetary policies.

He said, “The need for a safe and sound financial system cannot be overemphasised. I believe this is why the Governor of the CBN, Godwin Emefiele, has been harping on the need for Nigeria to adopt an extremely cautious approach to BTC or cryptocurrency adoption in the country.

“As responsible leaders and players in Nigeria’s emerging blockchain industry and virtual assets sector, we understand these concerns. Cryptocurrency, if not given the attention it deserves, may be easily used in manners that distort monetary policy as well as expose the banking and financial system to money-laundering and terrorism-financing risks.

“But the question is, how Nigeria should approach these risks. Is it by banning or restricting cryptocurrencies in the country’s banking and financial system (as the CBN has done since February 2021) or is it by recognising cryptocurrency as a financial technology innovation that should be regulated? I think the answer is the latter.”

According to Ihenyen, there was a need for the nation to adopt a risk-based approach as it would allow it effectively to address the major concerns of regulators.

He stated that when cryptocurrencies and other virtual assets were properly classified, some would fall under assets such as securities, utilities and derivatives while others would fall under money which could be used as a medium of exchange, store of value, or unit of account.

The decision of whether to accept a currency falls within the purview of the CBN. Attempts to reach the spokesperson of the CBN, Mr Osita Nwanisobi, were not fruitful. When he answered his call, he said he would not comment on cryptocurrency but asked our correspondent to send a text message.

He was yet to respond to the text at the time of filing this report.

Recently the Securities and Exchange Commission classified crypto as digital assets and released guidelines in a hope-offering attempt. The CBN is yet to respond to SEC’s recent move, and its official position still classifies crypto as illegal.

According to the International Monetary Fund, there will be numerous risks and adverse effects if crypto-assets ever became national currencies. It stated their value was volatile and unrelated to the real economy.

It added that countries with stable inflation, exchange rates and credible institutions were highly unlikely to adopt crypto as legal tender.

It said crypto would create macroeconomic instability, reductions in government revenues, and weak monetary policy if nations adopted it as their national currencies.

In a report titled, ‘Crypto assets as national currency? A step too far’, the IMF said, “As national currency, crypto assets – including bitcoin – come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment.”

In another report, the IMF added that crypto currencies’ high volatility and valuation and increasing co-movement with equity markets would soon pose risks to financial stability in countries with widespread crypto adoption.

It is obvious that crypto has changed the financial landscape of the world, and different countries are floating or entertaining the idea of digital currencies as a response. Recently, the IMF advocated for a global regulatory crypto approach.

Much about crypto is still yet to be known, hence the caution from regulators. But its massive adoption in various countries is proof of its value to consumers. As more is known about crypto, it is expected that regulators will find a way to allow it to thrive in their financial systems.

As the experts have said, crypto won’t replace national currencies, but the financial system must find a place for it.

PUNCH

Business

BREAKIN: NDIC Increases Maximum Deposit Insurance Coverage

Published

19 hours ago

May 2, 2024

Editor

The Nigeria Deposit Insurance Corporation (NDIC) on Thursday increased the maximum deposit insurance coverage levels for Deposit Money Banks from N500,000 to N5 million.

The Managing Director of NDIC, Bello Hassan, announced this in Abuja at a press conference, stating that it takes effect immediately.

He said, “For Deposit Money Banks, the increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, would provide full coverage of 98.98% of the total depositors compared with the current cover of 89.20%.

“In terms of the value of deposit covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37% compared with the current cover of 6.31% of total value of deposits.

“The increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, would provide full coverage of 99.27% of the total depositors compared with the current level of 98.76% and would increase the value of deposits covered by deposit insurance to 34.43% compared with 14.38% of total value of deposit, currently covered.

“The increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 would provide full coverage of 99.34% of the total depositors compared with the current 97.98% and would increase the value of deposits covered by deposit insurance to 21.04% compared with 10.77% of total value of deposit, currently covered.”

Hassan also stated that raising the maximum deposit insurance coverage for primary mortgage banks from N500,000 to N2,000,000 would provide full coverage for 99.99% of total depositors and increase the value of deposits covered by deposit insurance to 43.10% of the total deposit value, up from the current 40.60% cover.

The Corporation has also raised the maximum pass-through deposit insurance coverage for subscribers of Mobile Money Operators from N500,000 to N5,000,000 per subscriber.

Business

Dangote Speaks On Devaluation Of Naira

Published

1 day ago

May 1, 2024

Editor

Chairman of Dangote Industries Limited, Aliko Dangote has said that the devaluation of Naira created the biggest mess for the company in 2023.

Speaking at the annual general meeting of Dangote Sugar Refinery, Dangote said this affected lots of companies in the country.

He said: “We are doing whatever it takes to make sure that at the end of the day, we will be paying dividends because if you look at our dividends last year, it was almost 50 percent more so we will try and get out of the mess.

“The biggest mess created was actually the devaluation of the naira from N460 to N1,400. You can see almost 97 percent of the companies, especially in food and beverages businesses, none of them will pay dividends this year for sure but, we will try and get out of it as soon as possible.

“We want to see that at the end of the day, no matter how small, we will be able to pay some dividends, especially if there is a rebound of the naira.”

Business

Customers Panic As CBN Bans Opay, Palmpay, Others’ New Accounts

Published

3 days ago

April 30, 2024

Editor

Some bank customers have expressed panic as the Central Bank of Nigeria bans mobile money operators including fintech firms from onboarding new customers.

However, the Bank Customers Association of Nigeria backed the CBN directive.

The new directive will affect fintech companies such as OPay, Palmpay, Kuda Bank, and Moniepoint, from opening new accounts until further notice.

Reliable sources from three major fintechs who requested not to be mentioned as they were not permitted to speak, confirmed the development to The PUNCH on Monday.

The CBN’s move was linked to an ongoing audit of the Know-Your-Customer process of the fintechs, which have been under scrutiny in recent months over concerns around money laundering and terrorism financing.

It was gathered that the CBN had summoned some of the heads of fintechs to Abuja to discuss issues around KYC last week.

The CBN has not yet publicly commented on the directive to the fintech firms. The PUNCH’s attempts to reach the apex bank for comment were unsuccessful.

Several calls made to the telephone line of the CBN spokesperson, Hakama Ali Sidi, were not responded to as of the time of filing this report.

Also, the directive coincided with the court order that the Economic and Financial Crimes Commission (EFCC) obtained to freeze at least 1,146 bank accounts owned by various individuals and companies allegedly involved in illegal foreign exchange transactions.

The 85-page court order (document), which listed the bank account details suspected to be involved in illicit activities, was obtained by The PUNCH on Monday.

Justice Emeka Nwite, in a ruling on the ex-parte motion, moved by counsel for the anti-graft agency, Ekele Iheanacho, also granted the commission’s application to conclude the investigation within 90 days.

Part of the court document read, “That the applicant’s (EFCC) application is hereby granted as prayed.

“That an order of this honorable court is hereby made freezing the bank accounts stated in the schedule below, which accounts are owned by various individuals who are currently being investigated in a case involving the offenses of unauthorised dealing in foreign exchange, money laundering, and terrorism financing, to the extent that the investigation will be for a period of 90 (ninety) days.”

The EFCC, in the motion marked FHC/ABJ/CS/543/2024 dated and filed April 24 by Iheanacho, was heard by the judge the same day in the interest of national interest.

“The motion was brought pursuant to Section 44(2) and (K) of the 1999 Constitution; Section 34 of the EFCC Establishment Act 2004; Section 7(8) of the Money Laundering Prevention and Prohibition Act, 2022; and under the inherent jurisdiction of the court.”

The President of the Bank Customers Association of Nigeria, Uju Ogubunka, backed the CBN’s move to suspend new account opening on the affected platforms.

He told The PUNCH that the strict regulations that govern deposit money banks must apply to fintechs, and microfinance banks in order to ensure the integrity of the financial institutions.

He said, “Anything that can disrupt the system should not be permitted. If the platforms are being used for things that are against the regulations, I think the CBN decision is OK. I don’t see anything wrong with that. It behoves on the companies now to get their KYC right.

“Let them do what they are supposed to do. KYC applies to banks and other financial institutions that deposit money. It should also apply to them so that the regulators can understand what is going on and hold them accountable.”

On the other hand, Emmanuel Odunsi on X (formerly Twitter) welcomed the move, citing the need for better KYC processes to prevent scams and fraudulent activities.

“Their KYC isn’t that great. Lots of scammers are using their apps to defraud people.

“Most of the accounts were created by mining phone numbers, with subscribers’ permission. Almost every phone number has been linked to an account,” Odunsi said.

In October 2023, Fidelity Bank blocked transfers to OPay, Palmpay, Kuda, and Moniepoint due to concerns around KYC processes.

In response, the CBN introduced new KYC rules for all financial institutions in November 2023, which appeared to target fintech startups.

A source from Moniepoint said the company had complied with the directive, effectively halting new account creation on their platform. However, the source denied having anything to do with KYC.

“It’s just a regulation from the CBN, and we’ve complied. The real question is, why are fintechs always targeted,” he source argued.

“It has nothing to do with KYC; I am aware that the CBN communicated, but this particular issue dwells on accounts related to cryptocurrency transactions,” the source revealed.

The CBN has an ambitious target to increase overall financial inclusion to 95 per cent of the adult population by 2024.

With the new order, the target may be affected, as the company processes about 100 new accounts every day.

The source argued that fintechs had played significant roles in deepening financial inclusion in the country.

The company had deployed robust and reliable digital payment infrastructure that has facilitated an average monthly transaction value of $12bn for about 1.6 million businesses, it said last year.

A senior employee of PalmPay confirmed to The PUNCH that there was a CBN directive for fintechs to reassess their KYC processes.

This is causing a temporary pause in onboarding new customers, the source stated.

She clarified that the KYC review was a collaborative effort with the CBN, and fintechs were awaiting further instructions without a specified timeline for resolution.

Another source at OPay, who also declined to be named, said they were following the CBN’s directive and could not comment further.

“We don’t really have anything to say. It’s just a directive that we are following. The CBN has issued their directive.“

Fintech companies have faced increased regulatory scrutiny over their account opening processes.

Customers worry

However, some customers have also used social media, both on X (formerly Twitter) and Facebook, to express their worries and opinions on the matter.

Some customers are anxious about the safety of their funds, with Warisenibo Jumbo suggesting it’s best to transfer their money out of Opay.

Oye Niran wondered if their Moniepoint account was safe, stating, “Hope my Moniepoint account is safe.”

Larry Leanz questioned the rationale for keeping money on these platforms.

“But is it still safe to keep money there?, Leanz questioned.