Nigeria's Central Bank (CBN) has reversed its previous ban on cryptocurrency transactions, marking a pivotal shift in the country's stance toward its thriving digital asset market. The policy change, announced on December 22, 2023, was formalized in a circular signed by Haruna Mustafa, Director of Financial Policy and Regulation at the CBN.
This decision aligns Nigeria with global financial regulatory trends, particularly the Financial Action Task Force’s (FATF) updated Recommendation 15 (2018), which emphasizes oversight of Virtual Asset Service Providers (VASPs) to mitigate risks like money laundering and terrorism financing.
Key Developments in Nigeria’s Cryptocurrency Landscape
1. Regulatory Framework for Cryptocurrencies
- The 2022 Money Laundering (Prevention and Prohibition) Act now classifies VASPs as financial institutions.
- In May 2022, Nigeria’s Securities and Exchange Commission (SEC) introduced rules for digital assets and VASPs, establishing a structured regulatory environment.
2. Revised Banking Guidelines
The CBN’s new circular outlines procedures for banks and financial institutions to facilitate crypto transactions, including:
- Account openings for crypto businesses.
- Handling foreign exchange (forex) inflows linked to crypto trades.
- Prohibiting banks from directly trading virtual currencies (e.g., holding crypto on their balance sheets).
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3. Impact of the 2021 Ban
The initial February 2021 ban, driven by concerns over illicit financial activities, forced Nigerian crypto users to rely on peer-to-peer (P2P) platforms. Despite restrictions:
- Nigeria’s crypto transaction volume grew by 9% year-over-year, reaching $56.7 billion between July 2022 and June 2023 (Chainalysis).
- Businesses faced operational hurdles, with some relocating or shutting down.
Nigeria’s Digital Currency Paradox
While easing crypto restrictions, Nigeria continues to promote its Central Bank Digital Currency (CBDC), the eNaira. However, adoption remains sluggish:
- Only ~6% of Nigerians used eNaira in early 2023 (CoinGecko).
- Critics argue CBDCs could destabilize financial systems, though the CBN disputes these claims in its publication Economics of Digital Currencies.
FAQs: Nigeria’s Crypto Policy Shift
1. Can Nigerians now trade cryptocurrencies legally?
Yes, but only through licensed VASPs. Banks remain barred from direct crypto trading.
2. How does this affect P2P platforms like Binance?
P2P trading persists, but regulators have flagged Binance Nigeria for "illegal operations," citing pressure on the naira’s value.
3. What’s the difference between eNaira and cryptocurrencies?
eNaira is a state-backed digital currency (CBDC), while cryptocurrencies like Bitcoin are decentralized assets.
👉 Learn more about CBDCs vs. cryptocurrencies
4. Are there still risks for crypto businesses?
Yes. Banks must comply with strict anti-money laundering (AML) checks, and unauthorized trading remains prohibited.
Conclusion
Nigeria’s crypto ban reversal reflects a balancing act between fostering innovation and managing financial risks. With clear regulations and growing adoption, the country could emerge as a key player in Africa’s digital economy—provided it navigates challenges like eNaira’s slow uptake and ongoing scrutiny of exchanges.