In a significant shift, Nigeria’s central bank, the Central Bank of Nigeria (CBN), has lifted a two-year ban on cryptocurrency transactions, signaling a move towards regulation rather than outright prohibition. This decision comes amid surging crypto adoption in the country and reflects a global trend towards bringing the burgeoning digital asset space under regulatory control.
The Feb. 2021 ban had barred banks and financial institutions from facilitating crypto transactions, citing concerns about money laundering and terrorism financing. However, the rapid rise of crypto use in Nigeria, particularly among its tech-savvy youth, spurred a reevaluation of the policy. Subsequently, the Nigerian Securities and Exchange Commission (SEC) issued regulations in May 2023 for digital assets, hinting at the government’s intention to find a middle ground.
The CBN’s Dec. 22 circular acknowledges this shift in stance. Recognizing the increasing global recognition of virtual assets, the bank emphasizes the need for regulation of virtual asset service providers (VASPs), encompassing cryptocurrencies and related assets.
The new guidelines outline how banks and financial institutions can engage with VASPs. These include account opening procedures, designated settlement accounts, and facilitating forex inflows and trade for crypto firms. Notably, VASPs will require an SEC license to operate in Nigeria.
However, a key caveat remains: banks are still prohibited from directly holding, trading, or transacting in cryptocurrencies. This suggests a cautious approach from the CBN, aiming to address potential financial risks while enabling legitimate crypto activity through licensed intermediaries.
This decision holds significant implications for Nigeria’s tech-savvy population, many of whom embraced cryptocurrencies to bypass traditional financial structures. New York-based research firm Chainalysis reported a 9% year-over-year increase in crypto transaction volume in Nigeria between July 2022 and June 2023, highlighting the widespread adoption despite the previous ban.
The lifting of the ban, coupled with regulatory guidelines, represents a pragmatic shift for Nigeria. It opens doors for further growth of the crypto sector within a controlled environment, potentially fostering innovation and financial inclusion while mitigating potential risks. Whether this new framework strikes the right balance remains to be seen, but it undoubtedly marks a significant step forward for Nigeria’s engagement with the burgeoning world of crypto assets.
