By Nyce Ayuk
The world is moving at breakneck speed. The maneuvers for global dominance, economic prosperity and pre-eminent position are getting fiercer, smarter and will test the mettle of even powerful economies.
In this race akin to the arms race that defined much of the 20th century, only nations who make the right and timely decisions will be victorious; those who decide to play footsie will have themselves to blame. It is in the light of the above that I view the recent announcement of the Central Bank of Nigeria banning cryptocurrency operations in Nigeria as ill conceived, shortsighted and will haunt the nation years after nations who made the right policy choices are reaping bountiful harvest from their foresighted policy initiatives.
The announcement by Nigeria’s Central Bank caught many discerning watchers of Africa’s largest economy napping. After a terse statement banning cryptocurrency operations, the CBN offered more explanations as to why it banned transactions in cryptocurrency. The explanation came in the wake of negative reactions to the directive of the apex bank prohibiting cryptocurrency transactions by Deposit Money Banks (DMBs).
Osita Nwanibosi, the acting Director of Communication of the Central Bank, hinged the action of the bank on its understanding of cryptocurrency as largely speculative and volatile. He stated that the nature of crypto currencies has become more widely used as speculative assets rather than as means of payment.
The bank’s spokesman said: “Because the total number of Bitcoins that would be ever be issued is fixed (only 21million would ever be created), new issuances are predetermined at a gradually decelerating pace.
“This limited supply has created a perverse incentive that encourages users to stockpile them in the hope that their prices rise.
Unfortunately, with a conglomeration of desperate, disparate and unregulated actors comes unprecedented price volatility that have threatened many sophisticated financial systems.”
In as much as I have respect for the policy drivers of the Central Bank of Nigeria, I am of the considered position that its policy directive on crypto currency is a wrong policy that will haunt Nigeria now and in the future. It would therefore be a profound mistake to sustain this policy which will wreak incalculable damage on Nigeria’s economy and its standing in the world in the short and long terms.
My position is driven by the fact that the CBN directive is founded on a false premise as it demonstrates apparent lack of understanding about how cryptocurrency works. Even the most implacable opponents of cryptocurrency concede the fact that it is transparent, cannot be rigged and is above regulation. More importantly, it is the new frontier of economic turf game among competing economies and only nations who are foresighted will reap bountifully from the arrival of the new economic dawn that will be defined by digital currencies. The world is gradually waking up to this reality and are making the right policy moves to harness the transformative capacity of the blockchain technology.
As at today, more than 80 per cent of central banks all over the worldare exploring their own crypto currencies. It is reminiscent of the space race which defined the fierce competition among world powers in the 20th century. The present- day reality is that the world is on the cusp of what may turn out to be the most exciting and transformational period in modern history and unfortunately, Nigeria has decided to opt out of a glorious future that will be unfurled by this new dawn.
In this new age, blockchain based digitalization will drive transactions. Already, digital finance and monetary system is leveraging decentralized blockchain technology to modernize financial markets. Expectedly, the world’s biggest financial institutions and global central banks are the dominant players. Tokenization is inevitable with central bank digital currencies (CBDC) surging in adoption. Given this reality, it is not surprising that global rivalry in digital currencies is gathering steam with China, the United States of America, the European Union, UK, Thailand, Hongkong, Australia and many others exploring the potential uses for tokenized money.
The story of tomorrow’s history is already being written today with the winners and losers taking their positions based on their action or inaction in response to the arrival of this historic societal shifts.
And I ask again, what is the fate of Nigeria in this unfolding period.
David Marcus, head of Diem, the crypto currency project founded out of Facebook have already warned the United States about the importance of the arrival of this epoch. Addressing the United States Senate Committee on Banking, Housing and Urban Affairs, he said:” I believe that if America does not lead innovation in the digital currency, and payment area, others will.”
Recently, Elon Musk, Tesla founder and one of the richest men in the world bought $1. 5 billion in bitcoin as part of its corporate strategy to invest in various forms of digital assets. Tesla also plans to accept payments in Bitcoin in exchange for its products ‘subject to applicable laws and initially on a limited basis’. This move is significant and underscores the increasing recognition of the important role of bitcoin in the foreseeable future.
The latest CBN policy on cryptocurrency is ill-advised and represents a profound mistake with far reaching consequences. Policy makers should as a matter of urgency revisit this decision. Before this latest policy, Nigeria was already driving the cryptocurrency revolution on the African continent. On the global stage, it has the second largest Bitcoin trading volume. Within the last five years, it traded 60,215 Bitcoins worth more than $566millionUSD. Bitcoin with its enormous potentials and prospects was already growing 20 per cent per year; the year 2020 created 30 per cent trading spike with over 20,500 coins traded in that year alone.
Nigeria has the largest population in Africa and lacks employment opportunities especially for the teeming youth. The ever-ingenious youth latched on to the promise of Blockchain technology to carve out investment opportunities that took millions of the youths off the streets laden with violence and criminality. ]
If you add the activities of other local players such as Yellowcard, Frostpay, Instantcoin, Patricia and Redimitt are accounted for, the volume of business is likely to soar to about $1.5billion. This is the quantum of business that has taken a hit by the CBN policy. The prognosis is indeed dire. With Nigeria’s economy already buffeted by capital flight as a result of dwindling Foreign Direct Investment and shrinking job opportunities, it is ill-timed for CBN to worsen an already bad situation with a wrong policy initiative.
-Ayuk writes from France