The Central Bank of Nigeria Ends Ban on Crypto Transactions

The Central Bank of Nigeria (CBN) has reversed its ban on cryptocurrency transactions, marking a significant change in the country’s approach to the growing crypto market. Announced on December 22, 2023, this move by the CBN indicates a more accepting stance towards cryptocurrencies.

Haruna Mustafa, the Director of the Financial Policy and Regulation Department at CBN, has signed the order easing the ban. The circular issued provides guidelines for banks and financial institutions. It details how they should handle crypto transactions, including account openings and forex inflows for crypto-related businesses.

This decision aligns with the Financial Action Task Force’s 2018 update on regulating Virtual Asset Service Providers (VASPs) to prevent money laundering and terrorism financing. Accordingly, the Money Laundering (Prevention and Prohibition) Act of 2022 now classifies VASPs as financial institutions.

In May 2022, the Nigerian Securities and Exchange Commission issued rules on Digital Assets and VASPs, creating a regulated framework for their operations in Nigeria.

The initial ban, set in February 2021, was due to concerns over the risks cryptocurrencies posed in money laundering and terrorism financing. It impacted the Nigerian crypto community, which was active in crypto-to-fiat transactions through banks. The ban led some businesses to move abroad or shut down. Nevertheless interest in peer-to-peer crypto transactions rose 30% in the months after the ban.

Furthermore, despite the ban, a Chainalysis report showed a 9% increase in Nigeria’s crypto transactions, totaling $56.7 billion from July 2022 to June 2023. Nigerians turned to peer-to-peer trading to circumvent the restrictions.

With the lift of the ban, Nigeria’s tech-savvy population can now engage in crypto transactions through their banks, easing trading and involvement with digital assets. However, the new guidelines, replacing those from 2017 and 2021, still prevent banks from independently trading or dealing in virtual currencies. The CBN mandates immediate compliance with these updated regulations.

Yemi Osinbajo, the vice president of Nigeria, had previously said that with the right policies and strategies in place, the country has the potential to become a world leading crypto economy.