Nigeria is driving cryptocurrency traders out of its banking system
On Tuesday, November 9, Williams woke up to desperate news. His bank account had been closed to “benefit from crypto transactions”. According to the message received, his bank had received a “mandate from the Central Bank of Nigeria (CBN) to close all accounts engaged in crypto.”
He was advised to go to the branch of the bank where he opened an account to collect his funds. Unfortunately, Williams works as an expat in Ghana and will have to wait until his return to Nigeria to get his money back form the bank.
Six days earlier, on November 3, the Central Bank of Nigeria had Posted a Post-No-Debit circular to banks, directing them to close the accounts of named bank clients and place their funds in suspense accounts to engage in cryptocurrency transactions, in violation of the CBN BSD circular / DIR / PUB / 014/001 of February 5, 2021.
With curiosity, the referenced circular does not prohibit cryptocurrency trading. According to the CBN in its Press statement released on February 7, 2021, the circular of February 5 did not impose any new ban on cryptocurrencies. He contented himself with reiterating the content of a old circular, released in 2017, which warned banks not to trade in cryptocurrency and ensure that existing clients who are virtual currency exchangers have effective AML / CFT controls that enable them to comply with KYC and transaction monitoring requirements.
It appears to be a jump from this circular to the post-no-debit circular asking banks to close the accounts of clients for engaging in cryptocurrency trading. In defending its position against the cryptocurrency, the CBN cited the CBN Act of 2007 which prohibits the use of any other legal tender in Nigeria. However, purchasing cryptocurrency does not result in its use as legal tender in Nigeria. It is as much a currency as the British Pound and the Dollar, both of which are often bought by Nigerians to hedge against their volatile currency, but are not used as legal tender in the country.
Following the example of the CBN, other Nigerian banks such as FCMB have instructed their national branch network to report bank accounts of clients aged 18 to 30 with a high volume of transactions to close. Another giant leap.
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These FCMB actions are the most recent in a series of measures taken by the country’s banking system, apparently designed to prevent Nigerians from owning cryptocurrencies, without specifically saying so. Other banks, such as GTB and Kuda Bank, have already followed suit, sparking a wave of lamentation across the Nigerian cryptocurrency ecosystem.
Implications of this expulsion
The cryptocurrency has given hope to a new generation of Nigerians and a stable source of income in a country where average incomes have been declining for six years and fiat currency continues to lose value. In 2020, cryptocurrency transactions worth over $ 400 million were generated in Nigeria, the country ranking third on the planet in terms of the highest bitcoin trading volume. This figure is still on the rise, as cryptocurrency transactions saw a 25% year-over-year increase in June 2021.
A Twitter user who wishes to remain anonymous explained that she sold at a loss all of her shares in Nigerian companies after four years of investment and then bought SHIB, which allowed her to buy another nine pieces of shit. “But what if P2P is no longer an option,” she asks, “is this the end? “
Through targeting these cryptocurrency traders and pushing them out of the banking system, Nigeria effectively exposes them to more risk as they seek new ways to participate in this global market that offers unprecedented returns and relative monetary stability.
“Sourcing a P2P seller or buyer is going to be a Herculean task now. The worst part is that people will try to use other informal P2P methods to complete the transaction. While it’s no different from P2P on Binance and other exchanges, it’s significantly less secure, ”lamented one cryptocurrency trader.
Various hashtags, ranging from #NigeriaCryptoDay to #BoycottFCMB, have appeared on social media as young Nigerians reflect on how to get around this new hurdle.
Similar to how P2P was used to circumvent the ban on buying cryptocurrency following the February 2021 circular, options such as bitcoin vouchers and the use of informal P2P forums are considered to be alternatives to centralized P2P trading, while some users urge cryptocurrency enthusiasts to avoid the banking system. and more fully integrate their coins into their daily transactions, using applications like AbitPay. Nigerians had already started using stablecoins as an alternative savings tool in an attempt to protect against currency devaluations. The latest in a series of actions against their naira bank accounts has only accelerated the shift from naira savings accounts to crypto wallets.
“My plan is to do what I did in their first attack: keep my savings in stable coins and allow the market to absorb the pressure. But I am not worried. As long as people can still transact with their bank accounts, crypto will still work in Nigeria, ”said Dozie, a Nigerian cryptocurrency trader.
At a time when banks face an unprecedented liquidity crisis Due to CBN policies and being forced to issue term deposits and bank investments at rates that far exceed Treasury bill rates, can Nigerian banks withstand the effects of a possible boycott?
Yinka, an investment research analyst in Nigeria, thinks they can: “Most of these young people are retail clients. Of course, if they withdraw too much from the banking system, that will be a problem. But so far, a transaction over $ 10,000 will most likely go through even though 25 young people withdrew their funds. The point is, there is still a lot of confidence in traditional banking among older people. At least for now. So, if young people turn to more convenient banking systems, its effect on liquidity will not yet be very large. Because the older ones are the ones who really have a lot of money. “
The legal implications of the latest CBN decision are also worth mentioning. By victimizing cryptocurrency traders and trying to freeze them from the banking system, the CBN punishes traders for a crime that does not exist, an action which is clearly illegal. In addition, FCMB’s discrimination on the basis of age could be interpreted as a violation of basic human rights which are enshrined in the Nigerian constitution. Just last month, a Federal High Court sitting in Abuja ruled the CBN’s attempt to freeze the bank accounts of cryptocurrency traders illegal. It goes without saying that a similar decision would be taken in this situation.
In March 2021, just after the CBN banned the purchase of cryptocurrencies through bank accounts, the dollar volume of cryptocurrencies sent from Nigeria jumped to $ 132 million, up 17% from the previous year. last month. Young Nigerians are known for their resilience in the face of hostile politics and hostile law enforcement. For them, this is just one more obstacle to overcome.