A Closer look at the Central Bank of Nigeria Cryptocurrency Policy Recommendations

The Central Bank of Nigeria (allegedly in the aftermath of the 2020 Endsars protests that witnessed possibly the best example in the world of mass decentralized funding through Cryptocurrencies) formally put a stop to banking support services for Cryptocurrency transactions, citing a lack of legal backing and a centralized form of control/regulation ideal for the perpetration of financial crimes like money-laundering and the financing of terrorism.

At the same time, the Securities and Exchange Commission in 2022 formally passed a set of regulations providing the first administrative framework for the use of digital & virtual assets including cryptocurrencies.

This lack of administrative harmony, coupled with the growing trend of government adaptation and regulations of Blockchain and Cryptocurrencies worldwide, prompted the CBN in its newly issued Nigeria Payments System Vision 2025 to issue a specific number of new recommendations on Blockchain, Cryptocurrencies and Stablecoins which will be the focus of this article.

These recommendations are as follows :- 

1. The CBN would henceforth consider the development of a regulatory framework for the potential implementation of Stablecoin offerings – Stablecoins in this case being a type of cryptocurrency/virtual asset designed to be digital adaptations of Fiat currencies like the US Dollar and the Nigerian Naira, thus lacking the volatility typically associated with other cryptocurrencies or digital assets like Bitcoin.

The CBN already has a regulatory framework on its own issued stablecoin – the E-Naira.

2. The CBN will continue its watching brief on ICOs as well as work with SEC to jointly develop a regulatory framework in the event of adoption of an ICO-based investment solution, an ICO or Initial Coin Offering being a digital asset public offering equivalent of a traditional Initial Public Offering , an ICO being used to raise funds from the public through the launch of a Digital Asset , token or Cryptocurrency which can be a general-purpose digital currency (Monero being a good example) or having a specific use on the app that the ICO is associated with (Ethos or carVertical being good examples in this case).

3. There will be considerations for a Central Bank Digital Currency (CBDC). This recommended solution has the advantages of :-

• a). Facilitating better compliance with Anti-Money-laundering/ Combating the Financing of Terrorism (AML/CFT) frameworks.
• b). Payment efficiency for lowering transaction costs.
• c). Control via enabling the CBN to monitor and regulate Blockchain for the purposes of discouraging financial crimes like tax evasion.
• d). Economic development through digital currency value transfers between merchants, consumers, government entities and other parties.
• e). Data Privacy through the use of permitted DLTs(Distributed Ledger Technologies) which are systems of verifiable records of ownership to be distributed rather than relying on a central ledger.
• f). The zero possibility of being able to be counterfeited.
• g). Auditability.

4. The recommendation of a CBDC implementation network and deployment model based on the intelligent combination of a permitted DLT, a fast and lightweight consensus mechanism (such as proof-of-audit), strong cryptography and best-of-breed traditional technologies.

5. The CBN will consider the applicability for API integration on a CBDC to foster innovation.

6. The CBN will also be closely monitoring potential smart contract solutions in other countries and will develop its own comparable strategies when or if effective use cases are identified , smart contracts being pieces of code that are executed on a distributed ledger where for example, the transfer of funds can be dependent on specific conditions like the transfer of ownership of financial securities or the completion of a commercial trade.