The Central Bank of Nigeria (CBN) has overturned its previous ban on cryptocurrency transactions. This shift in Nigeria’s stance on the crypto market was announced in a circular dated Dec. 22, 2023, signed by Haruna Mustafa, the director of the financial policy and Regulation Department at CBN.
The new guidelines outline the procedures for banks and financial institutions to facilitate crypto transactions, focusing on account openings, foreign exchange (forex) inflows and trade for firms dealing with crypto assets. They are in line with the 2018 update to Recommendation 15 of the Financial Action Task Force, which calls for the regulation of Virtual Asset Service Providers (VASPs) to counter possible money laundering and terrorism financing. As a result, the Money Laundering (Prevention and Prohibition) Act of 2022 now recognize VASPs as financial institutions, and in May 2022, Nigeria’s Securities and Exchange Commission issued rules on Digital Assets and VASPs to provide a regulatory framework for their operations within the country.
The prohibition of crypto trading was initially imposed in February 2021 out of concern for the potential risks of money laundering and terrorism financing associated with cryptocurrencies, and posed a significant obstacle for the thriving Nigerian crypto community, which had enabled crypto-to-fiat deposits and withdrawals through bank accounts. As a result, numerous Nigerian businesses experienced difficulties, with some reportedly relocating their operations or closing down altogether.
Despite the ban, according to a report from Chainalysis, cryptocurrency transaction volumes in Nigeria increased by 9% year-over-year, amounting to $56.7 billion between July 2022 and June 2023. This new directive is then a promising development for Nigeria’s tech-savvy population who have shown interest in digital currency, allowing investors in Nigeria to handle crypto transactions through their bank accounts and engage with digital assets across various exchanges and payment services.
However, the CBN’s updated guidelines still prohibit banks and financial institutions from trading or transacting in virtual currencies independently, requiring them to comply with the new guidelines.
In August, the Association of Bureaux De Change Operators of Nigeria (ABCON) called for a ban on Binance, claiming it was putting pressure on the local naira currency. This was in addition to the statement issued by Nigeria’s Securities and Exchange Commission (SEC) in June, raising flags about Binance Nigeria’s illegal operation in the country.
In spite of the ban, Nigeria went on to pioneer a central bank digital currency (CBDC) known as the eNaira. According to a CoinGecko study, the uptake of the eNaira was slow, with only about 6% of the population adopting it within the first three months of 2023. Nonetheless, the CBN issued an official statement on Oct. 9, refuting claims that the eNaira could threaten Nigeria’s financial stability, and explaining the distinction between cryptocurrencies like Bitcoin and the eNaira in a comprehensive 300-page book titled “Economics of Digital Currencies: A Book of Readings”.