The Undertones of Nigeria’s Cryptophobia

No policy instrument seems more convenient for Nigerian policymakers as much as the rush to ban vaguely understood idea or practice. It’s as though nuances too are prohibited in our policy circles, even though such commando-style interventions have backfired and triggered reversals in the past. While it’s natural to fear what one doesn’t understand, the […]

No policy instrument seems more convenient for Nigerian policymakers as much as the rush to ban vaguely understood idea or practice. It’s as though nuances too are prohibited in our policy circles, even though such commando-style interventions have backfired and triggered reversals in the past.

While it’s natural to fear what one doesn’t understand, the outright ban of Cryptocurrency by the Central Bank of Nigeria, is a misreading of the dynamics of international political economy.

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It’s constitutional for the Nigerian policymakers to ban any innovation that scares or confuses them, but blockchain technology is here to stay with us. Like artificial intelligence, this virtual currency is disruptive but that’s the colour of the future we must prepare for, and Nigeria had been making inroads into the market until Godwin Emefiele, in yet another grammatically embarrassing circular, put an end to the party this week.

CBN’s directive is surprising because, barely five months earlier, a sister government agency, the Securities and Exchange Commission (SEC), acknowledged cryptocurrency as “securities” under its jurisdiction, and revealed a promising plan to regulate acquisitions of digital assets in Nigeria.“The general objective of regulation is not to hinder technology or stifle innovation,” the agency said in a well-circulated statement, “but to create standards that encourage ethical practices.”

If Emefiele had pretended to be a well-reasoned public servant in checking the ethical nature of Cryptocurrency, as his colleagues at SEC attempted, there would’ve been intelligent conversations around the ban. Whatever noble reasons he cited to justify the ban of this fast-evolving innovation, it’s going to be understood as another of the government’s efforts to neutralise threats to the regime and for good reasons. Last October, amidst the chaotic #EndSARS protests, the payment technology firm, Flutterwave, was instructed to shut down protesters’ account dedicated to donations. The protesting citizens had to resort to bitcoins, and the elusiveness of the digital currency obviously scared the government and it’s the reason for their resolve to freeze conventional bank accounts belonging to some prominent voices of that mass awakening.

Naira has been on a free fall in the past few years, and yet with no coherent policies to save it. One of the measures to prevent this inflation, a forex ban on food and fertilizer imports last October, further damaged the Naira, so much that its small denominations have become decorative paper strips in various Nigerian homes. In just a quarter after adopting what must’ve struck Mr. Emefiele and friends as a genius idea, Nigeria’s inflation rate hit 15.75% and considered the highest in the preceding three years.

As Nigeria’s foreign reserves further nosedived, along with the global oil prices, the desperation to protect the integrity of the Nigerian currency led to a series of frightening policies. Sometime last year, I strolled into my bank to withdraw from my domiciliary account and was reminded of a CBN policy that money deposited into domiciliary accounts through electronic transfers can only be transferred. What this means is, I can’t withdraw my own money as cash over the counter. I was lost for words!

What CBN didn’t realise in imposing this policy is, as unemployment bites the country, young Nigerians like me have embraced legitimate opportunities provided by the digital space to stay afloat. Being told that such payments can’t be withdrawn over the counter and yet Nigerians are restricted from utilizing payment platforms like Paypal, makes Bitcoin an appealing alternative. The same government, we must also know, has reduced dollar spending limits on Naira cards to $100.

I was a postgraduate student at the London School of Economics when Bitcoin, so far the most valuable cryptocurrency, began to gain traction among Nigerians, and my friend and a fellow student, Olaoluwa Samuel-Biyi, was a part of the digital revolution. As an investor, entrepreneur and financial analyst, he was ever eager to break down the essence and prospects of cryptocurrency in a world that has sabotaged Nigeria’s place in the digital economy.

After the CBN ban, I contacted him instantly, and his shock was palpable. “Many of the fastest-growing Fintechs in the country enable digital asset transactions,” he shared, and that “millions of Nigerians rely on digital currencies to get paid for freelance work and small remittances, and it has boosted the growth of the gig economy significantly.” He told me he had also messaged those around the policymakers to explain the decentralized nature of cryptocurrencies, and how the majority of transactions are carried out peer-to-peer.

What CBN missed is recognizing that cryptocurrencies can be regulated and formalized, and can serve as a major of revenues for the country. SEC had already demonstrated its willingness to intervene and formalize these transactions as have been done in other countries by, as Samuel-Biyi too noted, “providing a simpler interface to on-ramp and off-ramp, and protecting users from fraud and illicit transactions by being compliant with KYC/AML processes and blockchain monitoring tools.” That CBN overrode the ambition of SEC, which showed better understanding of this system, is a familiar disruption in Nigeria’s policymaking process.

Last year, Kenya, which had also harassed startups built around the digital assets market, proposed what their Nigerian counterparts appear to fear. The Kenyan government proposed a digital service tax, which was designed to target cryptocurrency exchanges and other online services. The tax, charged at the rate of 1.5% on gross transaction value with every crypto sale, applies to all digital asset exchanges operating in the country, and also peer-to-peer platforms. Nairobi proposed to generate about $45.5 million in the first half of 2020.

But shutting down formal exchanges of cryptocurrencies only means that the crypto economy will go underground, and thrive, and the Bitcoin-rich enemies that seem to scare the government are bound to expand and yet anonymous. What Emefiele has done is reopening the gates of the crypto black market that SEC seeks to incorporate into the formal arms of the Nigerian digital economy, and the implication is going to manifest as vast anonymous transactions.

The cryptocurrency business has already found a base in Nigeria and attracted vast foreign investments. This military-style declaration that such investments, which transpired under the watch and supervision of the same government, are henceforth prohibited, is going to kill the confidence of the very tech-savvy investors being courted from Athens to Zurich. Banning an innovation that’s here to stay, instead of studying to propose fool-proof regulations, is a flip back to the end of a long queue to this modern civilization.