After 34 months of its anti-cryptocurrency policy, Nigeria’s apex bank has lifted ban on cryptocurrency ban, saying all financial institutions can now support and facilitate crypto-related transactions.
Its latest operational guidelines on Virtual Assets Service Providers (VASPs) to all banks and other financial institutions (OFIs) is a shift from its autocratic policy against crypto, even though the young crypto community had their ways till the policy lasted.
What are VASPs?
VASPs means any entity that conducts exchange between virtual assets (cryptocurrencies) and fiat currencies, and transfers of virtual assets.
Why did Nigeria ban crypto trading in 2021?
In February 2021, the former CBN management headed by the now troubled Godwin Emefiele warned deposit money banks (DMBs), non-bank financial institutions (NBFIs), and OFIs to stop supporting transactions that were related to digital assets.
In April 2022, some financial institutions were fined heavily to the tune of N1.31 billion while bank accounts of crypto enthusiasts were placed on Post No Debit for violating the rule.
The affected banks included Stanbic IBTC: N200 million; First City Monument Bank (FCMB): N400 million; Access Bank: N500 million; Wema Bank: N100 million; United Bank for Africa (UBA): N100 million and Fidelity Bank was fined N14.28 million.
The huge fine sent a bad signal to crypto community.
Some of the concerns the apex bank raised include money laundering (ML), terrorism financing (TF), cybercrime, and the volatility of cryptocurrencies.
Why is CBN lifting the ban now?
One, there is a new man in charge of the CBN – Yemi Cardoso – as such, the new management of CBN has different opinions regarding cryptocurrency and its importance in decentralized finance.
Two, the 2021 cryptos paved the way for more innovative ways of funding crypto wallets using the bank account without the CBN knowing them.
The 2021 ban only had a temporary impact on the Cryptocurrency community; they later moved on.
It even gave Crypto exchanges operating in the Nigerian region to come up with smarter ways and means of funding crypto wallets.
Technically, the Emefiele Crypto ban has already lost efficacy.
Three, the losers are the Nigerian financial systems including the Nigerian authorities. In other climes, there are regulations in place which also allow them to charge profit tax on cryptocurrency gains.
In the case of Nigeria, it’s impossible to charge profit tax on digital assets. Can you tax what you already ban? You obviously know the answer.
Four, the ban was a stumbling block to some of the provisions of the Financial Bill that was signed into law on May 28, 2023, by immediate ex-President Muhammadu Buhari.
Specifically, the Financial Act allows Nigeria to charge 10 percent tax on gains on the disposal of digital assets including cryptocurrency.
How do you tax something you ban?
And for now, the present leadership led by Bola Tinubu is focused on revenue generation through taxation, in a move to reduce reliance on arbitrary borrowing.
And finally, it’s a shift to a global standard of regulatory measures rather than a ban.
In one of the posts, we posited that Nigeria should have regulated crypto trading instead of banning it because the anti-crypto policy only open doors of more opportunities for traders.
But now, lifting the ban on crypto transactions shows that Nigeria is ready for business.
According to a memo from the apex bank:
“Current trends globally have shown that there is a need to regulate the activities of virtual assets service providers (VASPs) which include cryptocurrencies and crypto assets.”
On the part of the banks that will support crypto related transactions
They must abide by Section 30 of the money laundering (Prevention and Prohibition) Act, 2022. The Act recognizes VASPs as part of the definition of a financial institution.
Nigerian banks need to go back to the rules of issuance, offering, and custody of digital assets and VASPs by the Nigeria’s Securities and Exchange Commission (SEC) in May 2022.
Will crypto exchanges trust the system?
One of the major deterrent to investment in Nigeria is unstable policies.
It’s unusual for the authority to be consistent with a policy for five consecutive years.
In less than three years, the country has gone back and forth on a policy. That applies to other sectors.
While the CBN now allows banks to support crypto related transactions, it may be difficult for exchanges that have moved on and found new ways of funding their crypto wallets to trust the Nigeria government.
Crypto community in Nigeria may also find it difficult to trust the government again, especially those who were scapegoats during the old anti-crypto policy.
From all indications, the new crypto policy from the CBN aims to widen its sources of revenue for the government. The government will be the biggest gainer in the new rule.
It also means that Nigeria may continue its lead in the Cryptocurrency in Africa.
Above all, the move to now fully regulate cryptocurrency trading in Nigeria is a great idea for Nigeria and its people to explore benefits of the new decentralized financial system.