It’s been over a year since the Central Bank of Nigeria (CBN) issued a circular prohibiting banks and other financial institutions from facilitating cryptocurrency transactions and processing payments for crypto exchanges, lest they risk “severe regulatory sanctions.”
In a statement, the bank said the directive, which saw Binance and other exchanges halt deposits in the country, is intended to “protect the financial system and the generality of Nigerians (including the youth population).” The bank added that it had “no comfort in cryptocurrencies at this time and will continue to do all within its regulatory powers to educate Nigerians to desist from its use.”
But that warning seemed to have fallen on deaf ears. In fact, it seems the appetite for crypto only increased thereafter, as more and more Nigerians turned to crypto to hedge their savings and businesses against the drop in value of the local fiat currency, the naira.
Data from research firm Chainalysis shows that shortly after the central bank ban, the dollar volume of cryptocurrencies sent from Nigeria rose to $132 million in March 2021, a 17% hike from the previous month. Additionally, transactions in June jumped 25% higher than the same month a year prior.
As Owen Odia, the Nigeria country manager at global cryptocurrency business Luno, told PYMNTS, the CBN ban “did not stop the adoption [of crypto], it only pushed [it] underground, [as] people [switched to] P2P [peer-to-peer] transactions via WhatsApp.”
Odia pointed out that if anything, this is a clear indication that cryptocurrency adoption in Nigeria is here to stay. It’s also why regulators would be better off fully embracing it and creating a framework that makes it easy for licensed players like Luno to operate in the space.
Bitcoin is no different. According to P2P financial platform Paxful, which boasts over two million Nigerian users, trade in the country alone accounted for $760 million of the nearly $3 billion global volumes it recorded in 2021 — further indication that consumers in emerging markets like Nigeria are hungry for virtual currencies.
Odia said one of the key factors driving this growth is the fact that digital currencies behave more like speculative assets, which people treat as long-term investments that will increase over time and return a profit.
The role of digital currencies in facilitating cross-border international remittances cannot be understated either, making the funds transfer process faster and removing the friction experienced by users who no longer have to deal with several intermediaries along the way.
“If you’re using your traditional banking system, you probably have to go to three middlemen, and when the money eventually gets to the final beneficiary, you can imagine how much would have been taken from it and the time it would take,” Odia argued.
More Required for eNaira to Scale
CBN might have issued a ban on crypto, but the bank is not totally closed to other forms of blockchain-based technologies.
In October last year, Nigeria became the first African country, and one of the few in the world, to roll out its own central bank digital currency (CBDC), the eNaira, as an alternative to traditional money.
The CBDC launched with 500 million digital coins and integrated 30-plus banks on the eNaira platform. At the time, Nigeria’s President, Muhammadu Buhari, said the adoption of the CBDC “can foster economic growth, improve financial inclusion and make monetary policy more effective,” ultimately increasing the country’s gross domestic product (GDP) by $29 billion over the next decade.
But as PYMNTS reported this month, the CBDC rollout has been fraught with challenges so far, with CBN Governor Godwin Emefiele accusing banks of “apathy” after a meager 700,000 customers opened an eNaira wallet since they debuted last year, out of around 55 million bank accounts in the country.
For Odia, the fact that the traditional banking system in Nigeria is well-developed, compared to other African countries, is a major contributing factor — and the eNaira will have to offer “something different,” or else there will be little incentive for people to adopt the CBDC.
She also pointed to applications in cross-border payments and potential interoperability with cryptocurrencies as areas that could propel eNaira adoption further.
Overall, Odia said she is a firm believer in the transformative power of blockchain, both for Nigeria’s economy and for countries beyond its shores.
“Blockchain can revolutionize the way business is done [in three main ways]: transparency, access to [real-time] information and speed of transaction. I believe it will impact every sector, from the government sector to logistics, to the retail business,” Odia said.
And Luno will be looking to play an important role in making that a reality. The firm is looking to democratize crypto access and empower at least a billion people by 2030 by educating customers and increasing awareness so that people can make informed decisions, she said.
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