The Future of Cryptocurrency in the Nigerian Financial Services System: A 2024 Perspective

BusinessEcommerce

  • Author Kayode Abiodun Adeyemi
  • Published March 20, 2024
  • Word count 969

Cryptocurrency is a digital or virtual currency that uses cryptography for security, making it difficult to counterfeit. Unlike traditional currencies issued by governments (fiat), cryptocurrencies operate on decentralised networks based on blockchain technology. The most popular and first cryptocurrency, Bitcoin, introduced in January 2009, paved the way for others like Ethereum, Ripple, and Litecoin. Cryptocurrencies can be classified into coins and tokens i.e. coins, like Bitcoin and Ethereum, operate on their blockchain, serving as digital money. In contrast, tokens, on the other hand, are built on existing blockchains and can represent assets or utility.

Cryptocurrency can offer several advantages to the Nigerian financial system. This is because its decentralised nature reduces reliance on traditional banking, making financial services more accessible, especially for the unbanked population. It also promises lower transaction fees and faster cross-border payments. In a country facing significant inflation and currency devaluation like Nigeria, cryptocurrencies present an alternative for wealth preservation and fintech startups are increasingly exploring these technologies. Companies like Binance, Luno, Quidax, and NairaEx facilitate buying, selling, and storing cryptocurrencies, indicating a growing acceptance within the Nigerian financial ecosystem.

Despite its potential, the rate of cryptocurrency adoption in Nigeria is understandably below average. In February 2021, the Central Bank of Nigeria (CBN) issued warnings about the risks associated with digital currencies and directed banks to close accounts of entities engaged in cryptocurrency transactions citing money laundering, terrorism financing, and regulatory concerns. However, while various Nigerian banks and financial institutions were cautiously navigating the regulatory trajectory set by the CBN, which had shown resistance to direct cryptocurrency transactions within the banking sector, the peer-to-peer (P2P) cryptocurrency market in Nigeria remains robust, indicating strong demand and interest among the population.

In October 2021, the CBN softened its stance and launched the country’s first digital currency, eNaira, as an alternative to regular cryptocurrencies, which was successfully experimented with in June 2022 to remit payments from the people in the diaspora. Currently, the narrative surrounding cryptocurrency in Nigeria's financial sector has seen a dramatic shift. Digital currencies are now becoming an integral part of the banking ecosystem, thanks to a more accommodating stance from the CBN, Nigeria Inter-Bank Settlement System (NIBSS) and the innovative approaches of the Nigerian banks. The acceptance of the cryptocurrency's integration, which reflected a broader global trend where countries worldwide are now increasingly acknowledging the potential of cryptocurrencies to reshape the financial services landscape, will no doubt strongly deepen the Nigerian financial landscape in 2024 and beyond.

According to the CBN report, the value of the eNaira in circulation, from the end of 2022 to the end of September 2023, grew from N2.55 billion to N10.26 billion in nine (9) months which represents a growth of 302%. Although there is still much to be done as far as digital currency is concerned, the statistics undeniably offered a ray of hope and thus signified that the eNaira digital currency can modernise Nigeria's financial system, potentially stabilising the currency and reducing reliance on the USD for transactions. Contrary to some opinions that the eNaira should be faced out or abolished by CBN, the apex bank should rather remain focused and intensify its current efforts on the initiative. This is because the adoption of eNaira will continue to rise especially in 2024, leading to a more stable and efficient means of exchange while diminishing the country’s over-dependence on tangible US Dollar transactions.

The eNaira initiative I believe will pave the way for enhanced financial inclusivity, streamline payment processes, offer a way for the country to keep up with innovations in payments and bolster the Nigerian economic resilience against fluctuations in physical currency markets, as exemplified by countries that have launched similar initiatives such as China, Jamaica and the Bahamas.

In addition, the acceptance of cryptocurrency by CBN is a step in the right direction which marked a significant milestone in the country's economic evolution and portrayed strong determination in the race for the future of money. By moving from a position of caution to a more supportive stance that recognises the inevitability and potential benefits of cryptocurrency, the CBN alongside the Nigeria Inter-Bank Settlement System (NIBSS) has secured a huge strategic economic advantage which should be leveraged as part of the solutions to resolve the current economic crises ravaging the country.

While the CBN has thankfully lifted the ban prohibiting banks from operating accounts for crypto-assets and effectively issued new guidelines on Wednesday, January 3, 2024, which will enable banks to offer crypto-related services under a regulatory sandbox environment, a robust framework aimed at ensuring the security of digital transactions and combating money laundering as well as other teething challenges should be developed and implemented.

For the CBN to demonstrate a real commitment to cryptocurrency operations, the apex bank should do more by also lifting the ban prohibiting banks as financial institutions from holding or trading in crypto-assets themselves on their accounts. The Nigerian government, on the other hand, should also demonstrate open-mindedness and show commitment to the Nigerian public by reversing the recent ban on crypto platforms, as the ban may achieve nothing other than worsening the already-stressed economic situation in the country. In addition, due to the nature of crypto-based transactions, the apex bank should also continue to enact (from time to time) enduring policies to critically scrutinise and regulate the cryptocurrency’s activities in Nigeria, as well as champion the promotion of cryptocurrency literacy among the general population to raise more awareness and acceptance given the observed significant gap in understanding how cryptocurrencies work with its inherent benefits.

In conclusion, the future of cryptocurrency in Nigeria is bright, and as its landscape evolves especially in 2024, it will therefore be crucial for the Nigerian government, CBN, policymakers, businesses, consumers and other stakeholders to engage in continuous dialogue and collaboration to draw more support and shape a financial system that is both innovative and inclusive.

I am a software developer, academic researcher as well as an ardent writer. The link to my LinkedIn page is:

linkedin.com/in/kayode-adeyemi-outstanding

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