Why We Banned Cryptocurrencies – CBN
The central bank of Nigeria has revealed why it decided to ban cryptocurrency trading in banks across the country. According to CBN, cryptocurrency transactions are highly speculative and volatile. The main bank gave an explanation in the statement by Mr. Osita Nwanisobi, Acting Director of Communications.
The explanation came after a widespread reaction to the recent CBN directive banning transactions with cryptocurrency by depositary banks (DMBs). Nwanibosi said the nature of cryptocurrencies creates a perverse incentive that allows speculation and volatility. The data now suggests that some cryptocurrencies have become more widely used as speculative assets rather than as a means of payment, which explains the significant volatility and volatility in their prices.
“Since the total number of bitcoins that will ever be issued is fixed (only 21 million will be created), new releases will be predetermined at a gradually slowing rate.” This limited supply has created a perverse incentive that encourages users to stockpile them in the hope that their prices will rise. “Unfortunately, a conglomerate of desperate, fragmented and unregulated players is driving unprecedented price volatility that threatens many complex financial systems.” In fact, the price of Ether, one of the largest cryptocurrencies in the world, fell from $ 320 to $ 0.10 in June 2017. Bitcoin’s price has also experienced similar volatility, ”he said.
He said that cryptocurrencies have no real value and cannot generate investment returns. “Unlike Fiat Money, which is accompanied by the complete trust and comfort of a country or central bank, cryptocurrencies have no intrinsic value and are not profitable by themselves.” When you buy a share of, say, a Nigeria Stock Exchange conglomerate, its price reflects the activity and output of that conglomerate, as well as the value people place on their goods and services. “This price could rise as the conglomerate produces better goods or services and is likely to gain a larger market share.
“On the contrary, cryptocurrencies have no foundations and will never have a foundation.” Investors only buy in the hope that their use and acceptability will increase, thereby increasing demand and price. “But as new versions of cryptocurrencies are available with new mathematical models, the endless supply could one day bring the price down to zero,” he warned.
However, he assured that CBN’s actions were aimed not at hindering technological payment systems, but at improving them. “At this stage, CBN would like to state that our actions are in no way hostile to the development of FinTech or a technology-based payment system.” In contrast, Nigeria’s payment system has changed significantly over the past decade, outstripping many of its peers in emerging market, borderline and developed economies thanks to reforms led by CBN. “This can be seen in the variety of participants, products, channels, the latest technologies in the payment system.
“This is also evidenced by the astronomical growth in transaction volume and value.” Nigeria is a preferred investment destination for international financial technology companies because of the CBN policies that have created a favorable investment environment in the payment system, ”he said. The director added that innovation in Nigeria’s payment system has been driven by CBN. regulatory reforms.
He said these reforms include the issuance of a set of guidelines and regulations for the operation of electronic payment channels in Nigeria; Changing a transaction; Issuance and use of cards and licensing of payment service providers. “The strong regulatory framework created by the Bank has opened the payment system to innovation with several new players in the following license categories:“ Payment Terminal Service Providers (PTSP), Payment Solution Service Providers (PSSP), Mobile Money Operators (MMO) ”), Payment Terminal Application (PTSA) Developers, Switches, Super Agents, Payment Service Banks (PSB) Agents
“It has created direct and indirect jobs for Nigeria’s youth.” A number of other initiatives are underway to further support FinTech development and job creation. These include regulatory sandboxes and open banking principles recently introduced by the Bank. “The recent regulatory directive has become necessary to protect the financial system and people in Nigeria from the inherent risks of cryptocurrency transactions.” Risks have increased recently, with disastrous consequences for the integrity of the financial system and financial stability, ”he said. He pointed out that cryptocurrencies are mostly speculative, anonymous and untraceable.
“They are increasingly being used for money laundering, terrorist financing and other criminal activities.” Even small retail and inexperienced investors face a high probability of losses due to high investment volatility in recent years. “In light of these realities and analyzes, CBN is not finding comfort in cryptocurrencies right now.”
“We will continue to do our best to educate Nigerians to refrain from using it and to protect our financial system from the activities of scammers and speculators,” he said.