The Central Bank of Nigeria (CBN) has lifted its previous ban on cryptocurrency trading. The move, announced in a notice on December 22, 2023, highlights a major shift in Nigeria’s stance on the country’s booming cryptocurrency market. The relaxation of the ban was signed into effect by Haruna Mustafa, Director of the Financial Policy and Regulation Department of the Central Bank of Nigeria.
The notice outlines procedural guidelines for banks and financial institutions to facilitate cryptocurrency transactions, focusing on account opening, foreign exchange (forex) inflows and transactions with crypto asset trading companies.
This action follows the National Financial Action Task Force’s 2018 update of Recommendation 15, which called for the regulation of virtual asset service providers (VASPs) to combat potential abuse for money laundering and terrorism financing.
As a result, the Money Laundering (Prevention and Prohibition) Act 2022 now recognizes virtual asset service providers as financial institutions.
In May 2022, the Nigeria Securities and Exchange Commission issued new rules on digital assets and VASPs, providing a structured regulatory framework for their operations in the country.
Cryptocurrency trading was banned in February 2021 due to concerns about potential money laundering and terrorism financing risks associated with cryptocurrencies.
This is seen as a major setback for the fast-growing Nigerian cryptocurrency community, which previously could make crypto-to-non-currency deposits and withdrawals through bank accounts.
After the policy was enacted, many Nigerian businesses faced challenges, with some reportedly relocating operations abroad or closing entirely.
Previous bans by the Central Bank of Nigeria have forced cryptocurrency users in Nigeria to bypass the financial sector through peer-to-peer transactions. A report by Chainalysis shows that despite the ban, Nigeria’s cryptocurrency trading volume increased by 9% year-on-year, reaching $56.7 billion between July 2022 and June 2023.
The new directive marks a hopeful turn for Nigeria’s tech-savvy populace, which has shown keen interest in embracing digital currencies. Investors in Nigeria can now process cryptocurrency-focused transactions through their bank accounts, simplifying their ability to trade and participate in digital assets across a variety of exchanges and payment services.
However, the updated guidelines, which replace those of January 2017 and February 2021, continue to prohibit banks and financial institutions from independently trading or dealing in virtual currencies, with the Central Bank of Nigeria insisting that compliance with the new guidelines is mandatory and must be implemented immediately.
Nigeria has had a complicated relationship with cryptocurrencies in recent times. On August 9, the Association of Exchange Dealers of Nigeria (ABCON), a major player in the Naira-USD exchange framework, called for the ban on Binance.
The association said Binance’s involvement put undue pressure on the local naira currency, a view that echoed statements made by the Nigeria Securities and Exchange Commission (SEC) in June when it flagged Binance Nigeria for illegal operations in the country.
However, while Nigeria banned cryptocurrency trading and exchanges like Binance, it went ahead and pioneered a central bank digital currency (CBDC) called eNaira.
Nigeria is one of a handful of emerging economies that has taken advantage of its compact size and less complex financial system to accelerate the adoption of government-backed digital currencies. However, a study by CoinGecko at the time showed that eNaira adoption has been slow, with only about 6% of the population adopting eNaira in the first three months of 2023.
Additionally, some critics of the project believe the e-naira could threaten Nigeria’s financial stability. However, the Central Bank of Nigeria issued an official statement on October 9 refuting these claims.
The bank further clarified the difference between cryptocurrencies such as Bitcoin and the e-naira in a comprehensive 300-page book titled Economics of Digital Currencies.
The publication delves into aspects such as potential impacts on deposit liabilities, regulatory issues, social welfare and public perceptions of CBDC.