Why Nigeria may not accept Bitcoin as legal tender

June 3, 2022

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Why Nigeria may not accept Bitcoin as legal tender

In April 2022, the Central African Republic became the first African country to adopt Bitcoin as a legal tender.

The nation’s parliament recognised Bitcoin and other forms of cryptocurrency as national tender, becoming the second country in the world to officially legalise crypto as legal tender.

In September 2021, El Salvador became the first country in the world to legalise cryptocurrency as a form of payment, allowing consumers to use crypto in all transactions. Since BTC was founded in 2009, ushering in a wave of different other cryptocurrencies, it has garnered good and bad attention from around the world.

Yet, its adoption, either legally or illegally, has continued to soar, forcing global businesses to begin to consider it as a form of payment. Recently, Emirates airline joined a growing list of companies to accept BTC as form of payment.

A report by the World Economic Forum disclosed that there were 18,142 cryptocurrencies, 460 crypto-exchanges, with a market cap of about $1.7tn. According to it, $91bn worth of cryptos were traded every 24 hours.

In Nigeria, crypto is illegal because of a February 2021 Central Bank of Nigeria ban on it. Regardless, Nigerians have continued to adopt it in transactions.

A Chainalysis report in 2021 revealed that the crypto market in Nigeria and other African countries grew by 1200 per cent in one year. It added that Africa had the third-fastest growing crypto economy in the world.

Another report by Chainalysis noted that Nigeria was the sixth leading country in the world in terms of crypto adoption despite the CBN’s ban on it.

In 2021, Nigerians traded at least N316.9bn worth of Bitcoin, with over six million crypto transactions and 16,000 transactions per day on Paxful. The peer-to-peer platform revealed that Nigeria was the number one nation on its platform.

However, experts believe that nations have to be cautious regarding the adoption of BTC and other forms of crypto as legal tender. They stated that BTC wasn’t designed to become a legal tender.

According to them, Nigeria might someday consider BTC as a form of payment, but it would never replace the Naira. They added that using it as Naira would contravene the constitutional purview of the CBN.

They further stated that the nations that had accepted or thinking of accepting crypto as a form of payment were those on the brink of economic collapse and Nigeria wasn’t necessarily one.

The Founder and Coordinator, Blockchain Nigeria User Group, Chimezie Chuta, said, “This will be contrary to the constitutional provision of Nigeria’s laws. Because explicitly, the CBN is the only institution empowered to issue a legal tender for the country.

“And currently, it is the Naira that has been issued, so for you to have an alternative unregulated currency to become a legal tender has to be legitimised by altering the constitution. That is something I do not see happening in a long time in Nigeria.

“Bitcoin can be recognised as a currency of payment but not a legal tender. Although it might become possible for you to use BTC to make transactions that are valid in the eyes of the law, but this is not something I see happening anytime soon because it is very clear that the central bank does not want the infiltration of unregulated kinds of payment instrument in Nigeria.”

According to him, BTC was perceived more as a commodity than an instrument of payment presently, and making it a legalised form of payment would be an encroachment on the purview of the CBN.

Chuta added, “Most countries that are adopting BTC are those that have hit the bottom like Venezuela and El Salvador.

“El Salvador didn’t even have a national currency; they were using the dollar. They could bring in BTC because they didn’t have a national currency. And in the other country, their economy was so bad that they had to allow BTC to become a national currency. Nigeria does not want to go in that route because they do not see themselves in that category yet.

“From a private perspective, one would have thought that what the CBN could have done is not necessarily legalise BTC but have reserve assets in BTC as a form of security against the continuous depreciation of the Naira. BTC has shown that it has a 200 per cent annual return since it has been in existence for a decade.

“If you compare this with the percentage value of the Naira, you would discover that it would have made some sense if some of our reserve assets are kept in a futuristic asset like BTC. That is the area I will support, but I do not think I will want Nigeria to turn BTC into a legal tender.”

The President of Stakeholders in Blockchain Technology Association of Nigeria and General Secretary of Blockchain Industry Coordinating Committee of Nigeria, Senator Ihenyen, said he was shocked when CAR announced the adoption of BTC as a legal tender.

According to him, BTC was not the solution to economic problems faced by countries and BTC wasn’t designed to replace national legal tenders.

He said, “CAR’s adoption of bitcoin as a legal tender came as a big surprise to me. Though I understand that decentralised currencies or cryptocurrencies will increasingly have a role to play in finance and payments, adopting bitcoin as a legal tender, in my opinion, is not really going to be the answer to the economic problems faced by CAR.

“Not even Satoshi Nakamoto, BTC’s inventor, expects that its electronic cash system would be adopted as the legal tender of any nation, including El Salvador. Nigeria is no exception. The primary idea of BTC is not to replace legal tenders such as the CFA, the dollar, or the Naira. Rather, it is to essentially enable peer-to-peer transactions in any network or ecosystem that wishes to adopt it as a means of exchange.

“In other words, BTC can operate side by side with legal tenders such as a central bank or reserve bank currencies, as well as central bank digital currencies such as the eNaira. Besides, considering the huge BTC adoption in Africa, including Nigeria, the more you attempt to stifle it or resist it, the bigger it becomes.

“This is because BTC and other similar cryptocurrencies thrive in a decentralised space where there is no central authority. So, regulators must see these crypto innovations as complimentary, thus proper regulations should be put in place to address the unique risks they may bring. That’s what regulation is all about.”

According to him, the decentralised nature of cryptocurrencies, including BCT, should make Nigeria consider exploring them for economic growth and global competitiveness since adoption had grown and would only continue to grow.

Ihenyen said that while the adoption of BTC wasn’t a possibility, Nigeria should be considering how its innovators, policymakers, and regulators could work together to ensure that the nation benefitted from the opportunities the crypto economy provides.

He stated that the Securities Exchange Commission had taken the first step to recognise digital assets in Nigeria.

He added that there was a need for a safe and sound financial system, and crypto had the tendency to distort monetary policies.

He said, “The need for a safe and sound financial system cannot be overemphasised. I believe this is why the Governor of the CBN, Godwin Emefiele, has been harping on the need for Nigeria to adopt an extremely cautious approach to BTC or cryptocurrency adoption in the country.

“As responsible leaders and players in Nigeria’s emerging blockchain industry and virtual assets sector, we understand these concerns. Cryptocurrency, if not given the attention it deserves, may be easily used in manners that distort monetary policy as well as expose the banking and financial system to money-laundering and terrorism-financing risks.

“But the question is, how Nigeria should approach these risks. Is it by banning or restricting cryptocurrencies in the country’s banking and financial system (as the CBN has done since February 2021) or is it by recognising cryptocurrency as a financial technology innovation that should be regulated? I think the answer is the latter.”

According to Ihenyen, there was a need for the nation to adopt a risk-based approach as it would allow it effectively to address the major concerns of regulators.

He stated that when cryptocurrencies and other virtual assets were properly classified, some would fall under assets such as securities, utilities and derivatives while others would fall under money which could be used as a medium of exchange, store of value, or unit of account.

The decision of whether to accept a currency falls within the purview of the CBN. Attempts to reach the spokesperson of the CBN, Mr Osita Nwanisobi, were not fruitful. When he answered his call, he said he would not comment on cryptocurrency but asked our correspondent to send a text message.

He was yet to respond to the text at the time of filing this report.

Recently the Securities and Exchange Commission classified crypto as digital assets and released guidelines in a hope-offering attempt. The CBN is yet to respond to SEC’s recent move, and its official position still classifies crypto as illegal.

According to the International Monetary Fund, there will be numerous risks and adverse effects if crypto-assets ever became national currencies. It stated their value was volatile and unrelated to the real economy.

It added that countries with stable inflation, exchange rates and credible institutions were highly unlikely to adopt crypto as legal tender.

It said crypto would create macroeconomic instability, reductions in government revenues, and weak monetary policy if nations adopted it as their national currencies.

In a report titled, ‘Crypto assets as national currency? A step too far’, the IMF said, “As national currency, crypto assets – including bitcoin – come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment.”

In another report, the IMF added that crypto currencies’ high volatility and valuation and increasing co-movement with equity markets would soon pose risks to financial stability in countries with widespread crypto adoption.

It is obvious that crypto has changed the financial landscape of the world, and different countries are floating or entertaining the idea of digital currencies as a response. Recently, the IMF advocated for a global regulatory crypto approach.

Much about crypto is still yet to be known, hence the caution from regulators. But its massive adoption in various countries is proof of its value to consumers. As more is known about crypto, it is expected that regulators will find a way to allow it to thrive in their financial systems.

As the experts have said, crypto won’t replace national currencies, but the financial system must find a place for it.

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