The Central Bank of Nigeria (CBN) has issued a circular to banks and other financial institutions in the country warning them on the use of virtual currencies such as bitcoin, stating that the move was made necessary by the potential money laundering and terrorism financing risks that have often been associated with virtual currencies.
Effectively, the Central Bank has banned banks and financial institutions in Nigeria from transacting in virtual currencies.
“Transactions in VCs (Virtual Currencies) are largely untraceable and anonymous making them susceptible to abuse by criminals, especially in money laundering and financing of terrorism. VCs are traded in exchange platforms that are unregulated, all over the world. Consumers may, therefore, lose their money without any legal redress in the event these exchanges collapse or close business. Central Bank of Nigeria
“Bitcoin, Ripples, Monero, Litecoin, Dogecion, Onecoin and similar products are not legal tenders in Nigeria", the notice further emphasized. This will likely have a negative impact on any company, especially FinTech startups, in Nigeria that was looking to innovate using Bitcoin.
The circular is similar to one issued by the Central Bank of Kenya, similarly warning financial institutions and members of the public against using cryptocurrencies, stating that they were untraceable, and were not recognized as legitimate. "Bitcoin is not legal tender in Kenya", the notice stated, adding, "no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business."
Chigozie Ononiwu, president of Hypernet Technologies, holds a different opinion. Speaking to The CoinTelegraph, he stated that if the Central Bank of Nigeria put the proper systems in place for the management of virtual currencies, the vices associated with virtual currencies could be contained, and the country could benefit as a whole.
SEC should work with Blockchain and Cryptocurrency technologies to drive transparency, accountability, equity, fairness and cost-effectiveness in our financial sector. There is absolutely nothing wrong for every Nigerian to buy Bitcoin for personal investment. Chigozie Ononiwu, Hypernet Technologies president
Ononiwu notes that Blockchain is bringing innovation and disruption that world governments cannot stop, adding that Nigeria plays an important role in its integration and adoption in Africa.
He sees the new directive as an attempy by the Central Bank to stifle development of Blockchain and Distributed Ledger Technology, which could potentially take away the Central Bank's ability to regulate transactions not carried out using the naira.
The CBN directive comes after the Securities and Exchange Commission of Nigeria issued a warning against virtual currencies, stating that no guidelines or regulations have been developed for them by any of the regulatory authorities in Nigeria.
"Given that these instruments and the persons, companies or entities that promote them have neither been authorized, nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business."
The emergence of Virtual Currencies (VCs) has attracted investments in payments infrastructure that provides new methods of transmitting value over the internet.
While consumers may theoretically lose their money without any legal redress in the event these exchanges collapse or close business, the currencies present a model that is vastly different from what the central banks are pushing for, one that is decentralized, and that draws value from what people are willing to pay for it, rather than the decisions of monetary policy committees and regulators.