By Obadiah Mailafia
A NEW CBN directive, dated February 5, 2021, has ordered all deposit money banks, DMBs, non-bank financial institutions, NBFIs, and other financial institutions, OFIs, that have opened windows for dealing in cryptocurrencies or facilitating payments for such currencies to close them down.
They are required to identify “persons and or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately”.
In early January the apex bank had issued a circular warning all regulated financial institutions and members of the public about the risks associated with cryptocurrency transactions. For my part, I worry more about the manner in which such policies are made.
It is similar to the FGN directive ordering everyone in the country to ensure that the phone numbers on their registered SIM cards are linked to their national identity numbers, NIN. Nothing inherently wrong with that policy. What is wrong is the disorderly approach.
Forcing Nigerians to link their SIM numbers to NIN when majority do not have access to registration sites is worrisome. And doing so at a time coronavirus is doubly problematic. Rightly or wrongly, some cynics believe that the exercise is meant to disconnect rural dwellers for them to become canon-fodder for the Janjaweeds.
Most of them use mobile phones to warn each other whenever the Janjaweeds are in the neighbourhood. When public policies are capriciously formulated, people are free to read any meanings they like.
With regard to cryptocurrency, I would have expected an independent technical study sponsored by CBN to advise on the pros and cons of digital currencies and to advise on the way forward. A lot of people, particularly the youth, believe the new directive is not unconnected with the recent traumatic EndSars revolt.
The authorities were shocked as to how well controlled and well organised the protesters were. Volunteers cooked meals and brought them to the trenches. Soft drinks were freely served. Vehicles were arranged to convey volunteers from place to place. Millions of naira were raised almost instantaneously to finance needs as they arose on ground. This money mostly came by way of cryptocurrency.
For the youths, it was their finest hour. That is, minus the latter-day looting which really was triggered off by hired bandits who were brought to confront nonviolent protesters with guns, swords and bayonets. History will record that, in the darkest night of tyranny, our youths did not disappoint. They were brave, disciplined, united and patriotic. They confronted the enemies of their future draped in our national flag and singing our national anthem. 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.
Cryptocurrency, unlike physical cash, exists only in cyberspace. That may not be saying much. 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 once 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 seventh 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 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 decentralised transactions controlled by blockchain that acts as a foolproof ledger for all transactions. You do not have to know anybody you are trading with. The transactions are guaranteed to be safe and secure.
Many of our Yahoo generation are investing in cryptocurrencies because they like their decentralised character and the fact that they are not susceptible to inflation the way ordinary money is. Cryptocurrencies are legal in the United States, although several countries have banned their use. These include China, Iran, Bolivia, Nepal, Bangladesh, Ecuador and Morocco.
There is no doubt that cryptocurrencies are volatile and risky. The transactions are irreversible, unlike in regular banking transactions. They are anonymous. There are no regulators. For all you know, at the end of the transaction, you may be doing business with a fraudster, child molester or terrorist.
The world’s greatest investor, Warren Buffett, dismisses cryptocurrencies as a worthless delusion and “right poison squared”. He has always counselled value investors never to invest in what they do not know. Buffett obviously understands neither technology nor the cyber world.
Instead of our CBN shutting down cryptocurrencies altogether, I would have hoped that they would tap into this sector for what it’s worth. The Bank for International Settlements, BIS, the international organisation 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. Bank Sverige, the Swedish central bank, is already working on developing its own digital currency, known as the “e-krona”.
The rise of the new economic powers is reshaping the structure and physiognomy of international monetary order. The United States and the advanced industrial nations have set the printing presses rolling by way of Quantitative Easing to solve their financial predicaments in a time of turmoil. Speculators know that sooner or later something will have to give. The flight to safety in gold and the emergence of cryptocurrency are among the many ways in which rational economic actors aim to protect their assets in bleak times.
At a time of high unemployment, spiraling inflation, weakening naira and worsening life-chances, many of our enterprising youths have found new opportunities in cyberspace. 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 in cryptocurrencies while curbing what is negative or deleterious.
Vanguard News Nigeria