Nigeria’s Bitcoin Conundrum and other confusions

The backlash against a Central Bank of Nigeria (CBN) directive on cryptocurrencies (see February’s Newsletter) echoes a dilemma facing governments around the world: how to regulate Bitcoin and other cryptocurrencies without stifling innovation. When the CBN issued a circular in early February warning banks and financial institutions that “facilitating payments for cryptocurrency exchanges is prohibited” and that they needed to identify and close accounts associated with them, it caused a commotion. Now a representative for Nigeria’s central bank has sought to clarify the directive, telling reporters that it was not aimed at discouraging people from trading in cryptocurrencies like Bitcoin, but served to enforce orders in place since 2017 banning crypto transactions in the country’s banking sector. But the 2017 directive did not prohibit crypto exchanges from using banking and payment channels. It simply required banks and financial institutions to ensure that their crypto-exchange customers have effective anti-money laundering and anti-terrorism controls in place.

Meanwhile, Nigeria’s central bank has again created controversy with rumours that it is planning to freeze foreigners out of its lucrative short-term bills market. The rumours started when the CBN’s director of monetary policy, Hassan Mahmud, said that offerings to non-residents of Open Market Operation bills would “ultimately” be phased out, without giving a time frame. The bank had outstanding OMOs of $8.3 billion as of March from $31.9 billion as at the end of 2019, according to data compiled by Bloomberg. This was after barring domestic funds from buying the securities and reducing new issuances as the cost of offering the instruments spiked. CBN used the short-term bills to lure portfolio investors and shore up the Naira after the crash in crude oil prices led to a dollar shortage in the country.