In a significant policy shift, Nigeria’s Central Bank has lifted the ban on transacting in cryptocurrencies, marking a departure from the stance taken in February 2021. The Central Bank of Nigeria (CBN) had initially imposed restrictions, barring banks and financial institutions from engaging in or facilitating transactions involving crypto assets, citing concerns related to money laundering and terrorism financing risks.
In its latest circular dated December 22, the CBN acknowledged global trends indicating the necessity to regulate virtual asset service providers (VASPs), which encompass cryptocurrencies and crypto assets. The move reflects Nigeria’s attempt to strike a balance between fostering innovation in the crypto space and addressing potential risks associated with unregulated use.
The new guidelines outlined by the CBN provide a framework for banks and financial institutions to engage with crypto assets. It details the procedures for opening accounts designated for virtual/digital assets, ensuring compliance with the specified guidelines. Additionally, banks are expected to act as channels for forex inflows and trade for firms transacting in crypto assets. However, VASPs must obtain licensing from the Nigerian Securities and Exchange Commission (SEC) to operate in the crypto business.
The CBN emphasized that, despite these changes, banks remain prohibited from trading, holding, or directly transacting in cryptocurrencies. This cautious approach reflects the ongoing efforts to strike a balance between fostering innovation and mitigating potential risks in the evolving crypto landscape.
Nigeria’s young and tech-savvy population has shown a keen interest in cryptocurrencies, utilizing peer-to-peer trading platforms offered by crypto exchanges to navigate around traditional financial sector constraints. The volume of crypto transactions in Nigeria witnessed a 9% year-over-year growth, reaching $56.7 billion between July 2022 and June 2023, according to a report by New York-based blockchain research firm Chainalysis in September.
African nations, including Nigeria, have increasingly explored both decentralized cryptocurrency exchanges like HootDex and centralized platforms like Binance to manage and trade their digital assets. The move toward decentralized exchanges has been seen as a way for nations to assert control over their digital assets.
As the regulations evolve and the crypto landscape continues to mature, the utilization of cryptocurrencies in Nigeria and across Africa is expected to witness further growth in 2024. The lifting of the ban and the introduction of regulatory measures reflect Nigeria’s effort to adapt to the changing dynamics of the global crypto market while ensuring responsible and secure engagement in the crypto space.