China Joins Thailand, UAE in Digital Currency Research, CBN Asks to Lift Ban

China Joins Thailand, UAE in Digital Currency Research, CBN Asks to Lift Ban

Central banks of China, Thailand and the United Arab Emirates as well as Hong Kong Monetary Authority have launched the Multiple Central Bank Digital Currency Bridge (m-CBDC Bridge) project.

The project is to study the application of CBDC in the field of cross-border payment, the People’s Bank of China (PBOC) said on Wednesday.

The Hong Kong branch of the Bank for International Settlements Innovation Hub has also extended its support to the research project, the PBOC added.

The participants of the project will evaluate the feasibility of m-CBDC Bridge application in cross-border capital transfer, international trade settlement and foreign exchange transactions, among others.

The research project will build an enabling environment for more central banks in Asia and other regions to jointly conduct research.

The research will focus on enhancing cross-border payment capacity in order to solve problems such as low efficiency, low transparency and high costs, the PBOC said.

Cryptocurrency and the CBN

In 2017, the Central Bank of Nigeria (CBN) rolled-out a series of plans on regulating the trading of cryptocurrency in Nigeria, CSL Stockbrokers said in a review. 

The investment firm explained that contrary to this position, on 5 February 2021, the CBN issued a circular to Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs) to close all accounts involved in dealing with crypto currencies or facilitating payments for cryptocurrency exchanges in the country.

According to the CBN, the policy directive became necessary due to the opacity of cryptocurrencies that have made them become well-suited for conducting many illegal activities such as money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.

The investment firm noted that many investors were left stranded and contemplated side-stepping the Nigerian banking system. 

“Cryptocurrency, a digital asset that leverages Blockchain technology to maintain records, decentralize registers’ control, protect user’s anonymity, and enviably build-in scarcity.

“Bitcoin, the leading among all crypto currencies, first came up in a white paper published under an alleged pseudo-name, Satoshi Nakamoto.

“Realizing that the volume and value of trades in cryptocurrencies emanating from Nigeria in the last five years are second only to the United States at US$566m and 60,215 units, the Nigerian Securities and Exchange Commission (SEC) released a publication on 14 September 2020”, CSL stated.

The publication highlighted how cryptocurrencies should be treated, thereby providing a framework for holding them as a digital asset in Nigeria.

This activity, SEC carried out in line with its responsibility under the Investment and Securities Act, 2007.

Globally, cryptocurrencies are increasingly gaining approval. Despite the increasing acceptance of cryptocurrencies however, its legal status varies considerably across various countries and jurisdictions.

While some countries have clearly permitted their use and trade, others have put in place strong restrictions while others have banned them outrightly.

However, concerns around how it could serve/be serving terror financing, money laundering and its inability to be regulated are yet to be addressed and this is a major reason for the slow acceptance rate and outright ban in some countries.

A major concern for the CBN is its inability to regulate cryptocurrencies, says analysts at CSL Stockbrokers.

For example, during the last ENDSARs protest, protestors following CBN Post no Debit (PND) instruction on their accounts resorted to cryptocurrency to finance their dissent. 

For crypto exchanges, however, players have leveraged the use of Peer to Peer (P2P) for settling cryptocurrency trades, a decision that has been successful so far, given that activities have continued unabated in the space.

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“Whilst we believe the CBN has valid concerns around cryptocurrencies, we believe the authorities may need to come up with innovative regulatory strategies to mitigate highlighted risks.

“Furthermore, we hold that rather than pushing transactions in the crypto market off the radar by closing traders’ accounts with banks, the CBN should keep such transactions under its watch while taking advantage of the opportunity to earn tax revenue in form of capital gains tax”, CSL said.

China Joins Thailand, UAE in Digital Currency Research, CBN Chides to Review Ban