Banks vs Bitcoin The Politics of Cryptocurrency Regulation in Nigeria

In analysing the regulation of cryptocurrencies in Nigeria, the government must consider what this regulation will look like and for whom. 

On 05 February 2021, the Central Bank of Nigeria (CBN) issued a letter to all Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs) operating in Nigeria. In this letter, the CBN reminded the banks and institutions of a 2017 circular, in which the CBN had advised of the risks of transacting in cryptocurrency and instructed them not to ‘use, hold, trade and/or transact in any way’ in such currencies, pending substantive regulation or decision by the CBN. The 2021 letter, in addition, directed all DMBs, NBFIs and OFIs to ‘identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.’ The letter also stated that breaches of the directive would attract severe regulatory sanctions.

The directive, which was widely shared on social media, provoked a variety of comments and reactions from Nigerians, the majority of whom were concerned about its implications for cryptocurrency trading in Nigeria. In response, on 7 February 2021, the CBN published a five-page press release to justify the central bank’s position to the general public and to reiterate that the anti-cryptocurrency policy had been in existence since 2017. Essentially, the CBN’s position on cryptocurrencies is that the anonymous, unaccountable, unregulated and volatile nature of cryptocurrencies exposes investors, traders, and associated financial institutions that interact with such currencies to significant financial and cyber risks. Additionally, the CBN stated that the use of cryptocurrencies in Nigeria goes against the key mandates of the CBN as the issuer of legal tender in Nigeria (a role enshrined in the CBN Act of 2007). Consequently, the CBN argued, the use of cryptocurrencies in Nigeria is a direct contravention of existing law.

According to the deputy governor of the CBN, Aishah Ahmad Ndanusa, the central bank banned the use of cryptocurrencies only within the banking system. This means that Nigerians can still trade cryptocurrencies, but they are not allowed to deposit or withdraw money in currency exchanges or retail trading platforms through domestic DMBs, NBFIs and OFIs.

Moreover, the CBN explained that ‘the recent regulatory directive became necessary to protect the financial system and the generality of Nigerians (including the youth population) from the risks inherent in crypto assets transactions, which have escalated in recent times, with dire consequences for the integrity of the financial system and financial stability.’ However, the CBN’s directive only mandated that financial institutions in Nigeria may not use, hold, trade and/or transact in cryptocurrencies, without including any risk mitigation strategies to address said risks. Evidently, the CBN’s policy is closer to prohibition than regulation and while the policy may have a variety of consequences for Nigeria and Nigerians, the policy ultimately serves to protect the interests of the Nigerian government vis-à-vis the financial system.


Since the CBN issued the 2021 directive, cryptocurrency exchanges such as Binance have announced temporary suspensions of naira deposits. Additionally, Nigerians have had to find alternative methods, and often complex ways to purchase, deposit, sell or withdraw their cryptocurrencies outside the Nigerian banking system.

For context, in September 2020, the Nigerian Security and Exchange Commission (SEC) laid out a regulatory framework for the potential regulation of cryptocurrencies. At the time, SEC, the main capital market regulator, insisted that cryptocurrency assets were securities unless proven otherwise and that all Digital Assets Token Offerings (DATOs), Initial Coin Offerings (ICOs), Security Tokens and other blockchain-based offers of digital assets within Nigeria targeting Nigerian investors would be subject to the regulation of the commission. Following CBN’s February announcement, however, the SEC suspended its plan. Although the SEC clarified that their suspension did not indicate a lack of alignment between the CBN and the SEC, the suspension undoubtedly revealed the lack of cohesion in the country’s policy direction in relation to cryptocurrencies.


In the CBN’s press release, the central bank referenced other jurisdictions such as China, Canada, Taiwan, and Indonesia. These countries had also warned their citizens about the risks of loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities associated with the use of cryptocurrencies. Additionally, the countries had placed restrictions on the facilitation of cryptocurrency transactions by financial institutions.

By referencing other countries, the CBN attempted to demonstrate that Nigeria was not an outlier with its policy position. However, while the foregoing countries flagged the risks associated with cryptocurrencies to their citizens, the CBN failed to acknowledge the extent to which these same countries, especially China and Canada, have either allowed their citizens to obtain and transact in cryptocurrencies through domestic financial institutions or developed blockchain technologies or digital currencies of their own.

China banned Bitcoin exchanges in 2017 and directed that its financial institutions stop providing banking services or funding to any activity related to cryptocurrencies. Despite the ban, China’s central bank, the People’s Bank of China, conducted studies on digital currency for over three years. Moreover, in 2020, the People’s Bank of China started testing a central bank digital currency that is currently being expanded from pilot provinces across China.

Canada, on the other hand, also warned its citizens about the risks of owning and transacting in cryptocurrencies but still allows the use of cryptocurrencies to buy goods and services on online stores and in brick-and-mortar stores that accept digital currencies. Similarly, Canada’s central bank, the Bank of Canada, is currently involved in a research initiative to understand how distributed ledger technology (DLT)—of which blockchain is a type—can transform wholesale payment systems. The research initiative also aims to explore the clearing and settlement of high-value interbank payments using DLT, and to identify the potential benefits from integrating cash on ledger with other assets, such as foreign exchange and securities.

Consequently, the CBN is incorrect in citing China and Canada as countries with similar policy positions as Nigeria. This is because the Nigerian government prohibits the use of cryptocurrency from permeating its financial system altogether and has not publicly identified or disclosed plans to research the utilities of cryptocurrencies or issue a digital currency of its own.


The Nigerian government and the Nigerian people often have opposing interests. It is unsurprising that this is also the case in relation to cryptocurrencies. Consequently, when analysing the regulation of cryptocurrencies in Nigeria, one must consider: what would regulation look like and for whom?


The use of cryptocurrencies is often presented as an alternative to the traditional banking system, and as a solution to the inefficiencies of the traditional global financial system whereby such inefficiencies can be rectified by the decentralized nature of peer-to-peer computer networks. For the Nigerian government—a central authority that uses monetary and fiscal tools and policies to influence the value of the naira and regulate the DMBs—the concept of a currency without central authority gaining mass adoption presents a significant risk to the stability of the government and the naira. Therefore, by prohibiting DMBs, OFIs and NBFIs from transacting in cryptocurrencies, the government aims to: 1) protect the traditional financial system; 2) ensure the naira remains in demand and; 3) maintain the government’s sovereign authority over the issuance of legal tender and use of monetary policy to influence the naira’s exchange rate.

However, by prohibiting the use of cryptocurrencies, the Nigerian government loses out on potential tax-revenue-generating opportunities. In Canada, for example, the Canada Revenue Agency mandates that its Goods and Services Tax and Harmonized Sales Tax also apply to the fair market value of any goods or services bought using cryptocurrency. Additionally, when Canadian taxpayers trade or mine cryptocurrencies, any resulting gains or losses constitute taxable income or capital for the taxpayer. Canadians who invest in cryptocurrencies are required to report their earnings to the government when they file their yearly income declaration. The Nigerian government, on the other hand, by prohibiting the use of cryptocurrencies, is not able to benefit from such tax revenue-generating avenues.

Additionally, in 2020, at $400.08 million, Nigeria became one of the top three countries with the highest level of Bitcoin trading in the world. Given the significant value of BTC/NGN trades, the prohibition of trading cryptocurrencies through the Nigerian financial system (i.e. through regulated financial institutions and the Nigerian Stock Exchange (NSE)) may result in the exclusion of the Nigerian economy from the increased levels of retail-investing activity in this new and rapidly growing sector. Considering the relatively new landscape for cryptocurrency mining and opportunities for investments in ICOs, the Nigerian government is missing out on opportunities to capitalize on the high level of market activity present in the cryptocurrency space. These opportunities include service fees associated with processing cryptocurrency transactions which can be charged by DMBs, OFIs and NBFIs. Cryptocurrencies could also lead to increased activity on the NSE if cryptocurrency Exchange Traded Funds (ETFs) were introduced to the NSE.


In defending its policy position on cryptocurrency, the CBN conveniently highlighted the extremely volatile nature of Bitcoin. However, the central bank overlooked the equally erratic, unpredictable and politically influenced nature of the naira, which Nigerians have experienced, relative to the US dollar, since the introduction of the naira in 1973. Trading at N0.65 to $1 in the early 1970s, the naira has exponentially lost value over the last 48 years. The devaluation of the naira has been significant over the past decade, in particular, with the naira today having lost 200 per cent of its value since 2010.

Admittedly, the devaluation of the naira is the result of multiple factors, including and not limited to falling oil prices, economic recessions and the COVID-19 pandemic. However, the naira has also been a victim of sustained mismanagement. It faced depreciation as a result of structural adjustment policies as part of IMF reforms under former military president Ibrahim Babangida’s regime; subsequently, in the Sani Abacha era, the naira followed a rigid exchange rate, which led to the mainstreaming of the foreign exchange black market. This fuelled arbitrage committed by commercial banks who took advantage of the Autonomous Foreign Exchange Market. In more recent times, the exchange rate has suffered through serial ineffective monetary policies, especially those implemented during times when the naira has come under pressure.

And it is exactly this type of government intervention that cryptography and the use of blockchain technologies aim to eliminate. Cryptocurrencies serve as a hedge against the falling value of the naira, and Nigerians increasingly prefer to invest and safeguard their money by buying Bitcoin and other cryptocurrencies rather than using traditional savings naira accounts, in which the value of the money saved depreciates daily.

In addition, there is dwindling confidence in the naira, Nigeria’s banking sector and the Nigerian government itself, which regulates the financial industry. Sustained periods of unsatisfactory customer service and exorbitant fees (which recently resulted in the CBN issuing warnings to banks), unfair, exploitative, unethical and predatory practices by commercial banks have decimated the confidence of Nigerians in the use of domestic financial products and services.

An ideal regulatory scenario for Nigerians would be one where cryptocurrency investors are allowed to use their traditional fiat currency bank accounts in purchasing, trading and selling cryptocurrencies. Equally, such investors can be allowed to use regulated financial institutions’ investment management service platforms to invest and transact in cryptocurrencies. This would provide ease of access for cryptocurrency users, without the need for in-depth expertise or technical knowledge of cryptocurrencies.

Cryptography, the technology that powers cryptocurrencies, provides an incorruptible check and balance system. Additionally, the peer-to-peer networks that cryptocurrency transactions operate on, eliminates the need for commercial banks who have traditionally acted as middlemen and facilitators in the financial industry. Therefore, instead of dealing with institutions and human beings with vested interests who have the power to create and implement monetary and fiscal policies, Nigerians can seek refuge in the interest-less nature of peer-to-peer networks.

On the other hand, the benefits of cryptocurrencies should not be overstated. Cryptocurrencies do not require trust in a central agency or body for individuals to accept it as a means of exchange. This is because the blockchain technology that powers cryptocurrency is an open-source code that allows individuals to review or make their own modified versions of the software. The absence of an authority that would traditionally interpret technical aspects involved in the use of (crypto)currencies has shifted the onus of understanding and transacting in digital currencies to the individual customer. Thus, Nigerians are able to transact in cryptocurrencies, but they do not possess the potential benefits that appropriate government regulation could provide. Such benefits include audit, transaction authentication and technical knowledge interpretation services that DMBs typically provide to fiat money customers to protect their data and investments.


Considering whether or not regulation of cryptocurrencies is the way forward, ultimately begs the question, ‘for whom and in what form?’. Citizens’ perspectives on the pros and cons of cryptocurrencies will vary and likely differ from those of the government and government officials. Yet, if Nigeria does indeed operate on democratic ideals, then authorities must take into account the interests and inclinations of the Nigerian people when designing policies for regulating cryptocurrency. If millions of Nigerians are using and trading cryptocurrencies and continue to express interest in the emerging technology, then the government should work with the people to embed cryptocurrencies within the local financial system and put in place adequate measures to protect people from the risks associated with cryptocurrencies.

Should the Nigerian government decide to take this approach, Canada’s approach to the regulation of cryptocurrencies provides a feasible blueprint. The Canadian approach could enable Nigeria to protect its citizens from the cyber and financial risks associated with cryptocurrencies while allowing citizens to invest and transact in cryptocurrencies through regulated financial institutions. As is the case in Nigeria, cryptocurrencies are not considered legal tender in Canada. However, Canada’s regulations mean that its tax, anti-money laundering and securities laws apply to cryptocurrencies and provide opportunities for the government to benefit from both tax and non-tax-based revenue while mitigating relevant risks.

Nigeria’s current policy on cryptocurrencies is closer to prohibition than regulation. The challenge for regulators will be developing efficient laws and regulations without impairing the growth of new technologies and investment opportunities

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