The Central Bank of Nigeria (CBN) recently issued a timely warning to the general public on the risks of virtual currencies. In a Public Notice published in the print and electronic media, the apex bank strongly warned that virtual currencies are not legal tender in Nigeria.
It also cautioned that “transactions in virtual currencies are largely untraceable and anonymous, making them susceptible to abuse by criminals for money laundering and financing of terrorism”.
Besides, the bank noted that virtual currencies are traded on exchange platforms that are mostly unregulated globally. Therefore, those who patronise them stand the risk of losing their investment or money without any protection and/or legal redress in the unfortunate event that platforms of such transactions collapse.
As a follow-up to the public warning, the CBN has also banned commercial banks and all other financial institutions in the country from the operation of any kind of virtual currency. The warning to the banks is contained in a circular by the CBN Director of Financial Policy and Regulation Department, Mr. Kevin Amugo.
The warnings from the CBN are commendable. They are necessary cautionary measures so as not to erode public confidence in our financial systems and to keep the banks well focused on what is expected from them on the matter of the controversial virtual currencies. Although virtual currencies do not have legal tender status in our economy, they are in use in a few economies where they are recognised as a digital representation of value that can be traded and function as a medium of exchange, a unit of account or store of value.
Virtual currencies such as Bitcoin, Ripples Litecoin, Dogecoin, Monero and others, as media of exchange, are internet-based activities which are not authorised by the CBN. Accordingly, the bank has directed that any suspicious transactions in virtual currencies by bank customers should be reported to the Nigerian Financial Intelligence Unit of the CBN.
It is, indeed, good that CBN has dutifully exposed the risks involved in the use of virtual currencies in our economy. It is, therefore, appropriate that the banks and the general public heed this warning. The European Central Bank has added its voice to the warning by the CBN as it also warned unwary customers that apart from being unregulated digital money, virtual currencies are usually controlled by its developers and used and accepted among the members of a specific virtual community.
The cautionary circular from the CBN has become even more crucial coming against the backdrop of the confusion that many Nigerians who patronised the Mavrodi Mundial Money box (MMM) scheme were thrown into a month ago when its promoters suddenly banned all withdrawals with effect from December 13, 2016.
Although the promoters of MMM returned a fortnight ago, promising on its website more tantalising trading options and payments, and listing Bitcoin as one of the new methods to be used for payments, many Nigerians who invested in the scheme are yet to recover their investments. It is uncertain if they will ever get their money and the 30 percent interest promised by the promoters back.
But, the pains that many MMM customers are going through now could have been avoided had they heeded the warning of the CBN and the Securities and Exchange Commission (SEC), months earlier, that the internet-based venture was a high risk scheme that could lead to loss of investors’ money. Many of them ignored the warning and are now paying the price for it.
We want to believe that Nigerians have learnt useful lessons from the many failed “wonder” schemes that promised to change their fortunes overnight but delivered misery at the end. As CBN has again cautioned, anyone trading in Bitcoin or other virtual currencies is doing so at his or her own risk.
The banks and other financial institutions should be on full alert on the operation of any form of virtual currency. This has become expedient because schemes such as this tend to flourish more during tight economic situations such as our country is currently experiencing. The penchant of many greedy persons for get-rich-quick schemes on electronic exchange platforms can erode confidence in the approved legal tender in the country and our financial institutions. These institutions, especially the banks, must be tightly regulated because banks are pivotal in our payments system.
We are also mindful of the fact that the combination of a difficult economic environment, increasingly sharp competition, technological revolution and continuing changes in the money and capital markets leave the banking industry in a somewhat challenging position. All the same, the success of the economy depends partly on the people’s confidence in the legal tender that is duly recognised by our regulatory authorities, and not on the trade in virtual currencies that are unknown to the Nigerian financial system.