Nigeria’s government today banned financial institutions in the country from trading in virtual currencies, such as Bitcoin, Swisscoin, and OneCoin, a move analysts say was a restrained first step towards regulating the digital currency that has exploded in popularity in Nigeria’s online trading transactions.
A statement by the central bank said that, while the computer-generated currency does not yet pose a threat to Nigeria’s financial system, it carries risks. It did not, however, curtail the use of bitcoin by individuals but warned on their investment safety.
Recently the Nigeria stock exchange has stressed the risks and possibilities of investors losing their money to such investments being promoted by these companies, including fraudulent pyramid schemes.
This ban comes against the backdrop of the return of Nigeria’s leading Ponzi scheme, MMM Nigeria, Upon resumption, the scheme introduced the use of bitcoins as part of its payment options, citing bitcoin’s steady growth in value as a reason for participants to adopt the currency.
In recent months, bitcoin.org has been running a campaign that bitcoin value relative to the dollar skyrocketed some 800 percent in the past two months as speculators have piled into the currency.
While there is no official data available, bitcoin market operators say Nigerian nationals are the second largest participants in the African market behind South Africa.
A statement on the website of the Central Bank of Nigeria said that the government would act to prevent money laundering risks from Bitcoin, which is not backed by the government or central bank.
“Bitcoins, which are anonymous, untraceable, and can be carried on memory sticks or transmitted electronically, because they represent a potential hole in the country’s capital controls.”
Similarly, the SEC advised the public to exercise extreme caution about digital currencies as a vehicle of investments.
“The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be risky with a high risk of loss of money, while others may be outright fraudulent pyramid schemes,” the regulatory body noted.
SEC warned that, given that these instruments and the persons, companies, or entities that promote them have neither been authorized nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business.
Implications for Nigeria’s Economy
Financial Analysts point out that, given the tiny value of the total bitcoins in circulation relative to other currencies, it is unlikely to have much impact on the wider economy.
The rising concern is the way these digital currencies have exposed online businesses to criminals who focus on hacking online platforms and stealing from Bitcoin stores.
There are indications that this initial ban on financial institutions may eventually be lifted, but more strictly regulated.
A financial analyst Tunde Balogun in Lagos believes that the ban will not stay for long given the current wave in online banking but he suggests a more regulated space in the future once they have a better idea of how the market works and which players are likely to emerge as the leading players, then they should come out with firmer regulations, with more specific licensing requirements,” and possibly minimum capital requirements for firms entering the sector.