Change of Heart

Several months after the Central Bank of Nigeria (CBN) released a directive prohibiting banks and other financial institutions from dealing in cryptocurrencies or facilitating payments for crypto exchanges, the Nigerian government appears to be changing its stance.

The evolution of Nigeria’s disposition toward digital assets includes the launch of the country’s Central Bank Digital Currency (CBDC), the eNaira, in October 2021. Last month, the country announced a proposed partnership with Binance for the establishment of a digital economic zone.

The State of Crypto in Nigeria

The CBN first made known its stance on virtual assets in a 2017 circular where it affirmed that cryptocurrencies are “not legal tenders in Nigeria.”

In the release, the CBN warned banks and other financial institutions in Nigeria not to “use, hold, trade and /or transact” virtual currencies in any manner. They were also charged with the responsibility of ensuring that existing customers that were crypto exchanges had effective AML/CFT controls that enabled them to comply with customer identification, verification, and transaction monitoring requirements. Faced with the choice of auditing crypto customers’ compliance frameworks or closing the accounts, it is difficult to imagine banks choosing the former over the latter.

Then in a 2018 press release, the CBN warned that “... investors in any kind of cryptocurrency in Nigeria are not protected by law.”

Despite the CBN’s many warnings, cryptocurrency trading volumes continued to increase, eventually prompting a directive in February 2021 to close all crypto-related accounts. The CBN followed this up in April 2021 with the imposition of N800 million in fines on four leading banks in the country for flouting its direction.

Interestingly, in spite of regulatory sanctions, cryptocurrency trading volume surged in the country. According to a recently published report from Chainalysis, between July 2021 and June 2022, Nigeria ranked as one of the countries with the deepest penetration and integration of crypto into financial activity in Sub-saharan Africa

A Change in Direction

Eights months after prohibiting financial institutions’ facilitation of cryptocurrency transactions, Nigeria became the first African country to implement a digital currency, the eNaira.

Launched on October 25, 2021, the CBN described the eNaira as a CBDC backed by law, the full sovereignty of Nigeria, and issued by the Central Bank of Nigeria as a legal tender. Put simply, the eNaira is the digital form of the Nigerian currency, a bearer instrument usable for the same purposes as Naira notes. Three weeks after the rollout Bloomberg reported that the eNaira wallet had been installed over 450,000 times, and users had completed over 12,000 transactions worth N62 million.

Binance and the Virtual Free Zone

In addition to the launch of a CBDC, the Nigerian government, on September 3, announced that it had commenced talks with Binance for the establishment of a digital economic zone.

In a now-deleted blog post, Prof Adesoji Adesugba, Managing Director of the Nigeria Export Processing Zones Authority (NEPZA), stated that the agreement is intended to set up a virtual free zone similar to those in the UAE. At a meeting in Dubai where the proposal was first made, Adesugba said, “Our goal is to engender a flourishing virtual free zone to take advantage of a near trillion dollar virtual economy in blockchains and digital economy.”

While still remaining skeptical of cryptocurrencies generally, the launch of a CBDC and a proposed establishment of a digital economic zone are welcome developments.