Nigeria’s Adoption Of Cryptocurrency And The CBN Drama

Nigeria is the country with the highest use of cryptocurrency, according to the latest Statista research that included 74 countries. 33% of Nigerians are either using or owning cryptocurrency and it has become a cheap alternative to sending money abroad. Recently, many Nigerian businesses have been adding crypto plugins to phone payment options, facilitating the use of crypto in daily life. Having said that, the Central Bank of Nigeria (CBN) has been cracking down on cryptocurrencies since 2017, and its recent directive makes crypto trading more difficult than ever. As Nigeria’s cryptocurrency adoption is ranked as the highest in the world, what will the consequences of CBN’s decisions be?

Where Do People Use Cryptocurrency The Most?

Apart from Nigeria, the second and third country that has reported the highest use of cryptocurrency is Vietnam and the Philippines respectively and cryptocurrencies are gradually becoming mainstream in the two countries. Latin America also registered a high growth with Peru leading the pack with 16% of survey participants using cryptocurrency, and Brazil, Argentina, Mexico, Chile, and Colombia all passing the 10%. On the contrary, European and Anglo nations have relatively low adoption, with Switzerland and Germany showing the highest adoption of crypto (11 percent each). Based on the results from the survey, Japan and Denmark had the lowest adoption of cryptocurrencies. Only 4% of respondents in these countries said that they used or owned cryptocurrency. 

CBN Cracking On The Cryptocurrency Trading In Nigeria

Even though Nigeria is leading in the cryptocurrency adoption ranking, on the 5th of February this year, the CBN has issued a letter addressed to the financial institutions in Nigeria, requesting closure of the accounts that are dealing in cryptocurrency transactions. As a result of the new directive, the crypto platforms also disabled withdrawals and deposits. 

CBN’s Actions Against Cryptocurrency Cause Unrest In Nigeria

As expected, the actions by the CBN caused concern about the future of the dynamically evolving FinTech and crypto field in Nigeria. The widespread concerns were addressed by the CBN in a press released that explained where the restrictions were coming from and highlighting the inherent risks associated with cryptocurrencies. As the statement said, the actions were “not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.”

The CBN also justified their decision by referring to other countries that have placed limitations on financial institutions due to the speculative and anonymous nature of cryptocurrencies. Many have doubts about the justifications, claiming that this reasoning is not really applicable. Most high-profile cases that are brought by the Economic and Financial Crimes Commission (EFCC) do not involve cryptocurrencies. 

2017 Warning By CBN Against The Use Of Cryptocurrencies

The circular comes a few years after the 2017 warning issued by CBN against the use of cryptocurrencies. The new directive does not void the legality of digital currencies, but it goes a step ahead of the 2017 guidance. Thus, theoretically trading cryptocurrency is basically impossible. By the 2017 note, banks were prohibited from doing crypto deals. Having said that, they could have exchanges as customers as long as they followed certain conditions. With the new directive, that becomes more tricky. Regardless, it is crucial to say that the 2017 actions by the CBN did not stop the quick-paced development of Bitcoin and other cryptocurrencies in Nigeria. 

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Bitcoin in particular becomes more and more prevalent across the whole continent. A 2020 study conducted by Arcane Research highlighted that multiple countries in Africa such as the already mentioned Nigeria but also South Africa or Uganda are among the top 10 that search for Bitcoin on Google and also own the highest amount of bitcoin. 

Cryptocurrency Saves Time And Money For The African Population

⅕ adults in Africa are dependant on internet banking and digital currency saves them the hassle of traditional bank accounts that are not always easily accessible. In many areas, there is a scarcity of banks, and thus, cryptocurrency and peer-to-peer transactions are solving the need for a bank account without the citizens having to go to an actual bank. Another large reason for such adoption of cryptocurrency in Africa is the ongoing recession. There are more than 40 currencies in Africa and all of them are struggling due to inflation and volatility. All of that leads to distrust among the confidence and the demand for more stable and alternative currencies. Digital currency is a safe haven for people’s money and it may soon become the new “normal” in African countries.

Are the directives put forward by the CBN too restrictive and not aligned with the development of technology in the financial sector? Many believe so. However, only time will tell how it will impact the FinTech sector in Nigeria and whether the other African countries that have a high adoption of cryptocurrencies will follow the conservative approach of the CBN.