A new CBN directive, dated 5th February 2021, has ordered all deposit money banks, non-bank financial institutions and other financial institutions that have opened windows for dealing in cryptocurrencies or facilitating payments for such currencies to close them down. It also demands that “persons and/or entities transacting in or operating cryptocurrency exchanges within their systems to ensure that such accounts are closed immediately”.
This follows an earlier directive, in January, warning banks and regulated financial institutions and members of the public to beware of the risks associated with cryptocurrency.
Some cynics see the new directive on cryptocurrency as not being unconnected with the recent traumatic EndSars revolt. The authorities were shocked as to how well controlled and well organized the protesters were. Millions of naira were raised almost instantaneously to finance needs as they arose on ground. Most of this money came by way of cryptocurrency.
For the youths, it was their finest hour. The holy martyrs of Lekki will never be forgotten.
One of the knee-jerk reactions of government was to close down the accounts of those they identified as “the leaders” of the uprising, although this was later denied. Several of the youths fled abroad. They have been helping the Chief Prosecutor of the International Criminal Court (ICC) to build her case against perpetrators of Crimes Against Humanity in our country. Those who see the new CBN directive on cryptocurrency as a continuation of that agenda might not be far wrong.
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Cryptocurrency, unlike physical cash, exists only in cyberspace. But then you could say that much of what we know as money today is also largely digital. Many of you my gentle readers use credit cards for many of your transactions. In our day and age of fractional banking, much of what goes for money exists only in the ledgers of banks. This is why central bankers and high financiers are regarded as rainmakers. They can create money from nothing.
Money is defined as anything that can be used as a unit of account, a medium of exchange or a store of value. In ancient times, things like cattle, cowries and even salt were used as money. Of course, metals such as silver and gold were widely used as money across most civilisations.
Paper money was first invented by the Chinese in the 7th century during the Tang Dynasty, although its widespread use emerged only in the 11th century during the Song Dynasty. The Venetians in the 16th century were credited with the invention of banking as we know it today. Dealers used to sit behind wooden banks (banco) whilst issuing IOUs to wayfaring merchants who preferred not to carry gold or silver, being wary of pirates and highwaymen.
Cryptocurrency is a phenomenon associated with our recent global digital revolution. And yet, it does bear some uncanny similarities with a form of symbolic money that was used by the ancient Micronesians on the island of Yap. Known as rai, they were heavy limestone monuments that were kept under the sea. Financial experts liken these stone legal tender currencies to the encrypted blockchain ledgers that we know as cryptocurrency today.
We define cryptocurrencies as digital payments that can be exchanged for goods and services online. According to recent surveys, as many as 6,700 cryptocurrencies, valued at $890 billion, are being traded publicly.
The world’s greatest investor, Warren Buffett, dismisses cryptocurrencies as a worthless delusion and “right poison squared”. It’s a matter of opinion
The first cryptocurrency, Bitcoin, valued today at a staggering $563 billion, was invented by an anonymous Japanese computer buff by the name of Satoshi Nakamoto. Bitcoin is a series of decentralized transactions controlled by Blockchain that acts as a foolproof ledger for all transactions. The transactions are guaranteed to be safe and secure.
Cryptocurrencies are legal in the United States, although several countries have banned their use. These include China, Iran, Bolivia, Nepal, Bangladesh, Ecuador and Morocco.
Cryptocurrencies are volatile and risky. The transactions are irreversible, unlike regular banking transactions. They are also anonymous. There are no regulators. For all you know, the guy at the other end of the transaction could be a fraudster, child molester or terrorist. The world’s greatest investor, Warren Buffett, dismisses cryptocurrencies as a worthless delusion and “right poison squared”. It’s a matter of opinion.
The Bank for International Settlements (BIS), the international organization that coordinates the policies of central banks across the world, recently came up with a framework for monetary authorities to develop central bank digital currencies (CBDCs). The BIS has been in conversation with the American Federal Reserve, the Bank of England and the European Central Bank (ECB) regarding that agenda. The emerging consensus is that central banks could indeed develop their own digital currencies as a complement but not a substitute, for existing legal tender currencies. The Swedish central bank is already working on developing its own digital currency, the “e-krona”.
International monetary order is undergoing a flux. The advanced industrial nations have set the printing presses rolling by way of Quantitative Easing to solve their financial predicaments. Speculators know that sooner or later, something will have to give. The flight to safety in gold and the emergence of cryptocurrency are vehicles for hedging against the emerging risks.
According to the World Economic Forum, Blockchain technology is set to explode by a staggering 295,7662% by 2027, leading to the creation of $8.6 trillion in new wealth, which is about the combined GDP of Japan and Germany. Cryptocurrencies and associated Blockchain technologies can no longer be ignored.
At a time of high unemployment, spiralling inflation, weakening naira and worsening life-chances, some of our enterprising youths have found new opportunities in cryptocurrencies. The wisest thing to do is not to bury our heads in the sand like the proverbial ostrich in the desert. Rather, we must adopt a rational-scientific attitude of tapping into what is advantageous while curbing what is negative or deleterious.
We need a technical study on cryptocurrency and the implications for monetary policy while taking on board global best practices from other central banks and the way forward.
