THE EFFECT OF CBN CRYPTOCURRENCY BAN ON THE ECONOMY OF NIGERIA
1.1 BACKGROUND OF STUDY
The global financial system is no doubt embracing the current transition from physical currency to almost virtual currencies through the medium of technology. This wave has ushered in the birth of crypto currencies. Crypto-currency has been defined as a digital record-keeping device that uses balances to keep track of the obligations from trading and that is publicly known to all traders. Some of the forms of crypto currencies include Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash, Neo, Iota, Dash, Qtum, Monero and Ethereum Classic. A cryptocurrency system is defined by two parameters: money growth rate µ ≥ 0 and transaction fee charge at a rate τ ≥ 0. Since the creation of Bitcoin in 2009, numerous private cryptocurrencies have been introduced. Since the advent of cryptocurrency, it has been getting a lot of media attention, and its total market value has reached 128.78 billion USD in 2019. It operates based on a technology called ‘’Blockchain’’.
According to Nakamoto (2008), cryptocurrency is a peer-to-peer Electronic Cash System. The peer-to-peer system of cryptocurrency is built on blockchain, thus, allowing transactions to take place between users directly, without any intermediary (Hameed & Farooq 2016; Grech, & Camilleri, 2017). It allows anonymous transaction between parties and as such, parties do not know the true identity of each other (Dierksmeier & Seele, 2016). This may be necessary because, the entire details of the transaction of every participant on the cryptocurrency blockchain is publicly revealed to other users (Bech & Garratt, 2017). Unlike the traditional currency which is issued at interval determinable by the Central Bank of each country, cryptocurrency like bitcion are mined at a fixed issuance algorithm such that the number of Bitcoins to be mined is halved every year.
Despite the risks associated with this currency, the rate of its growth is astonishingly benevolence and challenging. With its growth, Governments are thrown into dilemma. However the overwhelming benefits of cryptocurrencies has at as when accessible serve as an employment and financial opportunity for the employed and unemployed individuals. As it enables them to meet their individual financial needs at ease More also, the presence of companies who deals with cryptocurrencies in developing countries as Nigeria creates more job opportunity for its citizens, as job opportunities are open for the unemployed citizens. These massive benefits has to an extent made impressing contribute to Nigeria economy.
Nigeria, the hub of West Africa’s economy has remained stagnant over decades, It was later confirmed by the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele and the Minister of Finance, Kemi Adeosun that Nigeria’s economy was officially declared to be in a technical recession based on the new trend figures released. Unarguably, the state of Nigeria economy has disappointed the expectations of its citizens. As unemployment rate never drops to a noteworthy point, inflation and currency devaluation became a daily scenario in the economy (jaboen 2016). This devastated position of the economy has at all times placed a challenge to the citizens as they seek palatable and unpalatable opportunities to achieve daily survival.
However the evolution of cryptocurrencies has offered more than just survival opportunity to the poor masses. Majority of Nigerians took advantage of this flabbergasting platform to over up the lapse or gaps created by poor economy. Irrespective of all these as narrated above, the Nigeria Government unprecedentedly placed a ban on the use and trading of cryptocurrencies in its economy (nation) as announced on the 5th of February 2021. this unpalatable and extemporaneous executions however has left a certain effect, impression, and perception on the citizens. Thus, this study seeks to identify, investigate, and analyse the effect of CBN cryptocurrency ban on the economy of Nigeria.
1.2 STATEMENT OF PROBLEM
According to Aderonke Alex-Adedipe et al (2021), Nigeria has the second largest cryptocurrencies market among other countries. Nigerians for an instance in the last 5 years traded over $500 million worth of cryptocurrencies. However the central Bank of Nigeria released a ban on the trading of Crypto in Nigeria, as it instructed all commercial banks and other financial institutions to identify individuals who transact in cryptocurrencies and close down their accounts. In the recent times, this have been the situation and challenge faced by the masses in Nigeria as many lost access to their accounts, others lost their jobs hence adding to unemployment rate, while several others who depend on crypto transactions to meet daily needs are left helpless (Pecarb 2021). The Execution of certain drastic and unregorous national decision has the ability to build, improve, and destroy the economy of developed and undeveloped countries as whatever that affects citizens’ finance will reciprocally affect the economy (Zeback 1996). Thus, this study seeks to examine the effect of cryptocurrencies ban on Nigeria Economy.
1.3 PURPOSE OF THE STUDY
The study majorly investigates the effect of cryptocurrencies ban on Nigeria Economy. Other discrete objectives include;
Examine the impact of cryptocurrencies on Nigeria Economy.
Identify the consequences suffered by the Nigerian masses as a result of the ban on cryptocurrencies.
Find out the extent to which this drastic execution affect the Nigeria Economy.
1.4 RESEARCH QUESTION
What is the impact of cryptocurrency on Nigeria economy?
What is the resultant effect of the ban of cryptocurrency transactions in Nigeria on the economy of the country?
What are the consequences suffered by the Nigerian masses as a result of the ban on cryptocurrencies?
To what extent does the ban on crypto transactions affect the Nigeria economy?
1.5 SIGNIFICANCE OF THE STUDY
The findings on this study will of immense relevance the Government body of CBN and the Nigeria Government entire on the resultant effect such drastic action against cryptocurrencies transactions. This study also well serve a source of information about cryptocurrencies and the economic befits of the virtual currency. However this study will also serve as a source material for anyone who intents or carries out any study related to cryptocurrencies.
1.6 SCOPE OF THE STUDY
This study covers the effect of cryptocurrencies ban by CBN on Nigeria economy using four selected commercial banks in Abuja as a case study.
1.7 DEFINITION OF TERMS
Cryptocurrency: this is a digital currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions.
Economy: this is an area of the production, distribution and trade, as well as consumption of goods and services by different agents. In general, it is defined 'as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of resources'.
CBN: The Central Bank of Nigeria (CBN) is the central bank and apex monetary authority of Nigeria established by the CBN Act of 1958 and commenced operations on July 1, 1959
Government: the political direction and control exercised over the actions of the members, citizens, or inhabitants of communities, societies, and states; direction of the affairs of a state, community, etc.