Still on CBN’s ban on cryptocurrencies

Reactions to a recent circular by the Central Bank of Nigeria (CBN) reminding financial institutions that the ban on cryptocurrencies, aka cryptos, was still in place have been fast and furious. A vast majority of those who hold a contrary opinion have described the ban as a “hasty, spurious, nonsensical and unwinnable war” that threw a lot of Nigerians into “a state of confusion, frustration and inconvenience.”

Still on CBN’s ban on cryptocurrenciesIn a press release captioned “It Is Time To Open The Economy, Not Close It,” former Vice President and 2019 presidential candidate of the People’s Democratic Party (PDP) Atiku Abubakar waxed lyrical on the incongruity of the ban when many Nigerian youths are unemployed and more foreign domestic investment is needed.

Former Minister of Education Obiageli Ezekwesili interpreted the ban to mean that “Nigeria is unprepared to embrace the future,” dubbing it “an egregious regress-into-Stone-Age policy” for full effect. Former Senator and ‘common sense’ guru Ben Bruce warned the CBN against making “a hasty decision,” although it beats the imagination to see how a reminder of a memo written as far back as 2017 can be said to be “hasty.”

A motion co-sponsored by Senators Instifanus Dung Gang (Plateau North-APC) and Tokunbo Abiru (Lagos East-APC) claims that crypto transactions have become a “revolution,” so it is ‘insane’ to stand in the way of “a revolution like this.” For crying out loud, should the Nigerian publics consequently eager look forward to similar ‘open sesame’ motions regarding older ‘revolutionary’ economic activities like prostitution, trafficking of children and women, armed robbery, kidnappings and drug trafficking?

Critics acknowledge that cryptos are high-risk digital assets and that risk-bearing is part and parcel of portfolio investing. In the light of this, they wonder aloud why the CBN seems bent on weeping louder than the bereaved since no investor has sought compensation from the apex bank for losses suffered on cryptos.

It is perhaps in a bid to assuage such aggrieved investors that the Securities and Exchange Commission (SEC) decided to issue a press statement last Thursday disclosing that it was suspending transactions in cryptos and not banning them outright.

The core mandate of the CBN is financial systems stability. It would, therefore, amount to a gross dereliction of duty for the banking regulator to stand aloof and watch cryptos play irredeemable havoc on the already weak economy. This is definitely not the time for critics to play to the gallery – in the hope of garnering the Youth vote at the next election – or seek to selfishly protect their own investments at the expense of the nation’s monetary policy implementation.

The utterances of individuals and statutory bodies opposed to the ban – no matter how well intentioned – are sending mixed signals to both domestic and foreign investors about the cohesiveness and quality of our economic policies. And it certainly portends a clear and present danger to the autonomy statutorily granted the banking regulator – via the Central Bank of Nigeria (CBN) Act – when politicians and others with vested interests can easily make nonsense of its directives.

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A crypto – unlike Fiat money – does not have intrinsic value tied to market fundamentals. It, therefore, experiences extreme price volatility. For example, Bitcoin reportedly hit a record high price of USD42,000 per unit on 8 January 2021, only to plummet within just two weeks to USD28,800 – a whopping 31.4% ‘devaluation’! Before then, Etherium, another mainstream crypto, fell from USD320 to just 10 US cents in the month of June 2017.

Little wonder that Andrew Bailey, Governor of the Bank of England, warned that “the attendant high risk and extreme price volatility mean cryptos cannot be used as a lasting means of payment” – a development that is likely to become more dire as newer versions based on new mathematical models come on stream, making it highly plausible that an infinite supply would someday crash the unit price to USD0 (zero)!

Iconic American investor Warren Buffet described a crypto as “rat poison squared,” a “mirage,” and a “gambling device”! Yes, cryptos can be used to purchase goods and services but the truth is that because they are supposedly fixed in supply, investors predominantly buy with the expectation that its use and acceptability will rise, thereby ratcheting up its demand and prices.

It can now be clearly seen why there can be no meeting point between investors’ interest in having cryptos trading on a wider scale and the CBN’s objective of immunising the economy against the grave risks of an inflationary spiral and mounting pressures on the value of the naira.

In a recent interview at the Reuters Next conference, former IMF Managing Director and current European Central Bank President Christine Lagarde disclosed that a crypto “is a highly speculative asset, which has conducted some funny and totally reprehensible business.”

It beggars belief that at a time when investment titans in far advanced climes are calling for extreme caution, critics in Nigeria – including senators and politicians – are demanding that the government and CBN do the exact opposite. Have they never heard of the trite saying that only fools rush in where angels fear to tread?

Exposing deposit-taking banks to the vagaries of highly speculative assets, such as cryptos, would put them – and public deposits in their vaults – in harm’s way. A failure of even one bank in this regard would produce a domino effect that would cripple economic activities.

The book on central banking would have to be significantly rewritten to accommodate lines of business like crypto trading, and this cannot happen overnight. Monetary policy execution is anchored on the aggregate money supply and demand in the economy – a variable that would be consigned to the realms of voodoo, crystal-ball gazing, and soothsaying should cryptos constitute a major medium of exchange.

Crypto-trading as a major vehicle for creating employment opportunities for the army of unemployed youths, diversifying the economy, and promoting capital inflows into the economy? Hmmmm! Who even cares, just as long as it helps to keep Yahoo Boys and other youths ’employed’ and illicit gains continue to pour into the nation’s coffers?

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Well, we better care, since this kind of the-end-justifies-the-means argument can be stretched to justify any government scheme to promote emigration of multitudes of our unemployed girls as prostitutes abroad in order to be ‘gainfully employed’ and be in vantage position to remit hard currency from the Diaspora!

Apart from the disclosure by the US Federal Bureau of Investigation (FBI) that Nigerian fraudsters were using cryptos to siphon million of dollars of Covid-19 stimulus funds out of the US, the recent listing of Nigeria as the highest crypto destination in the world should be a wake-up call for the government and all patriotic Nigerians. Imagine raking in as much as USD200-300 million per week – with no accompanying economic imprint!

There can be no gainsaying that regardless of whether one supports or dislikes cryptos, they are becoming a very important part of global payment systems. Still, extreme caution is called for in terms of customer protection, compliance and financial systems stability.

Unlike politicians, the CBN is not cut out to enter popularity contests. It is only mandated to do that which is monetarily in the nation’s best interests no matter whose ox is gored. Anything contrary would seriously threaten to unravel measures that have resulted in great gains in monetary policy implementation in recent years.

The funny thing is that critics actually acknowledge existing and potential challenges of cybercrime, money laundering and financing of terrorist activities, among others, that cannot be traced, but then glibly say that “regulating cryptos within the ambit of Nigerian laws” would make the problems blow away as if cryptos are a Nigerian creation. On the contrary, cryptos are a global digital phenomenon exactly designed to be independent of central banking and government regulations!

That being the case, why don’t we just tarry until more advanced financial systems crystallise a universally-acceptable code of laws? That is why our policy makers should be excited by news reports stating that MasterCard has indicated its readiness to fill the vacuum created as an increasing number of central banks ban banks from having anything to do with crypto transactions.

But MasterCard’s intervention comes with the caveat that it would only partner with central banks to create a brand new set of digital assets to be generically called ‘stable coins’ i.e. cryptos pegged to Fiat currencies, such as the US dollar. Head or tail, it would still be bye-bye to Bitcoin and most mainstream cryptos!

  • Okoye, a Boston University (USA) Hubert H. Humphrey Fellow wrote in from Abuja (07034799300 – SMS Only)

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