Nigeria's Central Bank has prohibited banks from processing cryptocurrencies | Hacker News Reader

Nigeria's Central Bank has prohibited banks from processing cryptocurrencies

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I live in Nigeria and this story is not being reported accurately. Back in 2017 the Central Bank asked banks to keep an eye out on people trading crypto and report suspicious activity. At the time there were many multi-level pyramid schemes running in the country and even one that included bitcoin in its name and the govt was clamping down on these issues and cryptocurrencies fell into that bucket

Come 2021 we are in a Bull run again and crypto action is high in the country. The govt sends this letter to banks again to keep an eye out.

This is not a Ban on Bitcoin or cryptocurrency it is shutting down the onramps of fiat into crypto. There are also other nuanced issues in the country about the Central bank needing people to hold the currency (Naira) due to heavy devaluation going on at the moment but lots of people are converting all their money to BTC and this is a way to halt it.

Hope this clarifies this for some people

Isn't shutting down the onramps effectively a ban on cryptocurrency?

As a actual ban, it wasn't as effective as you'd think in many other countries.

Considering how countries with high inflation such Venezuela and Argentina rely mostly on P2P to on-ramp to crypto I don't think "banning" exchanges will be an effective way to drastically reduce usage in Nigeria.

I'm very new to a lot of this, so you'll have to excuse me if I ask dumb questions.

> rely mostly on P2P to on-ramp to crypto

How does this work? If I have 1000 NGN, how do I convert that to the equivalent in BTC without going through an exchange?

In person

localbitcoins.com

This is interesting! I think for this to really work for Nigerians right now, there needs to already be some critical mass of Nigerian BTC holders bootstrapped. Would be interesting to know if this is already true; from my understanding Nigeria has the among the widest BTC adoption in the world.

This is already true. Actually P2P was the primary way of trading crypto in the country till last 2019-2020. So there is already an established P2P market here

> There are also other nuanced issues in the country about the Central bank needing people to hold the currency (Naira) due to heavy devaluation going on at the moment but lots of people are converting all their money to BTC and this is a way to halt it.

Kinda buried the lede there, no?

Seriously... it’s good for the country to have everyone’s money devalued massively? What is going on?!

There is another angle to this foreign currency based remittances which support foreign exchange rates were at lowest in 6 years. CBN has stopped most companies that remit directly to Naira based accounts. Their view is that such companies are using cryptocurrencies which do not have ripple effect in their foreign currency markets.

A lot of people seem to underestimate the regulatory risk. Cryptocurrencies are not too big to fail.

On the contrary, something like a single high-profile scam with billion-dollar losses for retail investors could lead to Western governments also getting squeamish and shutting down the money flow between exchanges and banks. Nobody will care if that destroys some startup's IPO or a 0.05% holding at a JPMorgan fund.

Lol, no one is going to care about the retail getting scammed. Otherwise I agree, things might get nasty if important rich people get scammed.

It could add to the government regulation, but I think we shouldn't underestimate the people interested in crypto. If there's a way to get around those regulations, people will find it.

US is still the leading country in the world when it comes to regularity clarity and legal certainity. When it goes a way by changing simething infrastructure is built upon for many years, even people who don't care about Bitcoin care about it and see the country as less investable.

There's been a pandemic and an insurrection in USA, yet stocks are higher than ever. Banning crypto exchange transactions wouldn't even be a blip on the radar. The forces attracting foreign investment are much bigger.

I broadly agree with this, but there's also been a disproportionate interest in crypto from the finance community. It's seemingly part of a larger desire for some sort of fintech-libertarian-utopia (hard air-quotes there). As such, a move against crypto would be a pretty big signal that nobody should expect anything other than a rather conservative (in the dictionary sense) approach to financial regulation.

You implicitly assume that when governments start to burn the bridges between fiat and crypto, it is the crypto holders that will run to the fiat side before the last bridge is gone. But it could also go the other way around.

How? I mean, what non-crypto not illegal thing you actually can currently purchase without going via fiat?

Teslas, gift cards.

The Tesla isn't priced in Bitcoin though, is it? It's not like they have a Model 3 that costs 0.75 BTC. The Bitcoin price will vary daily based on whatever rate they get from their off-ramp.

I don't think Tesla would keep the revenue as Bitcoins because the accounting implications are pretty weird. This is from Tesla's 10-K, via FT [1]:

"We will account for digital assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition."

You sell a car for Bitcoin but then you'd have to record the revenue as intangible goodwill on the balance sheet? That would mess up their results.

It's worth noting that Tesla includes US government bonds as cash equivalents, but isn't able to do the same with Bitcoin.

[1] https://www.ft.com/content/364734d1-80df-49d3-bc2f-c813c9306...

https://99bitcoins.com/bitcoin/who-accepts/

Prices are pegged to fiat but the merchants accept BTC directly.

Are you sure? E.g. AT&T in the list seems to accept via bitpay, does that really mean that AT&T has it's own bitcoin wallet where they receive the btc? (I do not know, but I just have some doubts)

Further, what percentage of those companies will continue to "accept" bitcoin if they are no more allowed to convert them to dollars?

Almost all companies will sell the Bitcoin as soon as it's paid, yes, most without ever touching it themselves. It's just like using a credit card as far as they're concerned. See this chart from BitPay on how they work: https://support.bitpay.com/hc/article_attachments/3600338995...

Remember that every actual Bitcoin transaction requires, on average, paying a $17 transaction fee to pay all the miners and the electricity they used in processing the transaction, so you don't want to actually be sending it between people often.

I have mainly used Namecheap and NewEgg, not AT&T. Many of these companies may not process Bitcoin transactions themselves, but instead rely on a third party like Coinbase/Bitpay who handle the BTC-to-fiat conversion, so in that case the companies would not themselves host a wallet. My "directly" I mean that you don't need to convert your BTC to fiat to pay for these services. I suspect that most of the companies would stop accepting Bitcoin if it couldn't be converted to dollars, but that's not what I was replying to; I specifically said that "prices are pegged to fiat".

How would that work?

Companies can't easily switch to crypto because they need to pay all kinds of taxes. (E.g. somebody buys a $100 jacket using Bitcoin. How is sales tax collected and paid if there are no crypto off-ramps?)

Employees will of course get paid in the accounting currency of the companies that employ them. How do those salaries get converted to crypto in this vision of a separate crypto economy?

You answered your own question, but the answer is unthinkable to you. (Which is probably a good thing for those of us who live in the developed world, but consider that there is a large fraction of the world that views their local government as simply the biggest bandit around, and when the local government comes begging for cash, the solution is often to hire a bigger, meaner bandit. Or become one yourself.)

> You implicitly assume that when governments start to burn the bridges between fiat and crypto, it is the crypto holders that will run to the fiat side before the last bridge is gone. But it could also go the other way around

It cannot be the other way around. KYC and AML regulations will choke crypto overnight if it cannot at least theoretically access a pool of USD.

A lot of people forget how many years people were using cryptocurrencies for when banks did actively close your account if they found out you were messing with them.

People still bought and sold and traded bitcoin on IRC. Even robots were still able to do it. The whole thing still works it's just that some use cases are more annoying.

Sure. But do you really think one Bitcoin will be worth $50k if you have to trade it on IRC?

But Nigeria Naira is in free fall for more than 5 years now. The risk of holding Naira is more than that of BTC. We have two important exchange rates one at 372, another at 472. Only people with government link can easily source at so-called official rate. It is virtually impossible to import basic materials for small scale industries. Cryptocurrencies created windows for Nigerians to invest their money. We have inflation at 17% but CBN ordered banks to fix interest rate at around 1%. This is nothing but wealth destruction. Cryptocurrencies have helped Nigerians to work remotely and earn decent wages. I remember one guy from Nigeria who was making good money from a cryptocurrency based freelance company.

> We have inflation at 17% but CBN ordered banks to fix interest rate at around 1%

I would‘ve thought it’s prudent to keep interest low in such a scenario, because it stimulates investments.

Low interest rates also make borrowing money cheap, which means people borrow money from banks, which increases the money supply (as well as the rate at which it's being turned over). This effect dominates any long term production increase which certain types of investment might facilitate.

Raising interest rates when inflation is high is Central Banking 101

Sure, CBN 101. But investment 101 is different,you try to beat inflation. Here, inflation destroys your currency value. Note that inflation in Nigeria is driven by foreign currency exchange rates and not interest rates.

Serious question - why is BTC a unique answer? Can't you buy index funds or ETFs? Can you not easily convert Naira to USD and/or Euro? Does the government forbid this?

Have you tried to do that while being part of non-first world financial system? Normally if local currency is being devalued by government it goes along with capital control mechanisms that essentially renders other investments impossible

Because the vast majority of people living in earth don't have access to traditional equity markets

the base case for cryptocurrency has and will always be democratizing finance, finance for the people that don't have the same access. banking for the unbanked, as naive as that sounds. uncensorable money, in the case of monero/zcash/privacy focused coins especially

Getting access to that is tricky, even for a lot of people towards the bottom of the income brackets in the developed world. There are regulatory or financial or other hurdles.

Just trying to send ordinary sums (say $1000) to someone in Venezuela, or Nigeria, or even India or China can be very tricky. Not everyone has PayPal. Even if they do, it may be subject to all sorts of capital controls or taxes that we do not see in most Western countries. It can often be either impractical or extortionate through the traditional financial system.

I have many reservations about Bitcoin, but if I just needed to send some money to someone in a developing country, it's pretty high up there on practical and simple ways to do so, if they can deal with the BTC on their end. Canada is quite free financially. I can send cash pretty much wherever, with no legal concerns if it's not funding crime and any investment returns are taxed. The legality on their end is another question, as this article shows.

Can't speak for Nigerians but Europeans don't have access to ETFs either. There truly is incredible entry barrier to many things if you're not born in a right country.

Huh? Where is this? I absolutely can put money into ETFs traded on the Frankfurt exchange via my broker.

I was talking about the American market. Unless you're a professional investor you can't touch ETFs if you're an euro.

> A lot of people seem to underestimate the regulatory risk.

I think you overestimate how much people visualize their future based on the degree to which somebody in Washington, DC approves of their choices.

People holding crypto aren't suddenly going to say, "Oh, the government that's already swirling the drain doesn't approve? I guess I'll move my assets back into a currency they control."

Sure, cryptoenthusiasts can hold on to crypto all they want, but in a scenario where buying and using it is about to become incredibly difficult or even illegal, the value of Bitcoins isn't going up.

Given the concentration of miners, I'd rate the Chinese government as potentially the bigger regulatory risk though...

I think you overestimate the number of Bitcoin buyers who are libertarian ideologues vs. pure FOMO investors.

Perhaps the US government might fall someday. But in the meantime they still have plenty of resources to imprison you for money laundering, fraud, or tax evasion.

From a literal nobody who only spent 10 minutes researching nigeria's economy.

Crude oil prices started crashing in 2015.

https://www.macrotrends.net/1369/crude-oil-price-history-cha...

Nigeria is dependent on oil exports. The drop in oil prices immediately causes the value of Nigeria's exports to decline. People still need to import the same goods they always do. The end result is a trade deficit. That trade deficit has to be funded by borrowing, worst of all, in a foreign currency. When your country is dependent on a single industry, foreign debt is no joke.

https://tradingeconomics.com/nigeria/balance-of-trade

The focus of the government should be either to build a domestic economy that reduces dependence on imports or it should diversify its economy to export other goods that are uncorrelated with the price swings of oil.

Everyone knows what the government should do. No mystery there. The problem in many resource rich countries is that the government lacks the will or political capital to implement those changes. Nigeria is partially a failed state and an islamist insurgency now controls part of the country.

How come that every time I see a letter from a Nigerian bank, I involuntarily start looking for manipulation artifacts and other red flags?

At some point there were restrictions of getting money out of the country; a big, well known American company with business in Nigeria bought a mix of cryptocurrencies with local currency and sold it for dollars, getting around the restrictions. The transaction was in tens of millions of dollars, if I recall correctly. This kind of transactions make the local currency even weaker, so there is at least this reason the central bank wants to close the door.

So now the Nigerian Princes are going to be trying to get their millions in bitcoin out of the country and nobody is going to answer their emails.

Nigeria is going to become #1 for P2P Bitcoin transactions soon.

Inaccurate. Unless they intend on trading Bitcoin with pokemon cards, crypto trading is rendered illegal by this decree.

I'm afraid you are wrong. This document reads like the Nigerian central bank is barring banks from serving as on/off ramps between Naira and cryptos.

Banks have no ability to prevent crypto trading itself. This is by design.

People's accounts are being closed for participating in cryptocurrency transactions.

How are they going to distinguish ATM withdrawal->any transaction from ATM withdrawal->crypto transaction? Additionally, do you really think a Nigerian bank would close the majority of its accounts just because the government said so?

Prior to the ban, most people bought cryptocurrencies by making bank transfers to cryptocurrency exchange operators. It’s trivial for them to determine which people have sent money to or received money from those accounts.

There is going to be a shift to P2P transactions using cash as a result of the ban; which are harder to trace but also less convenient, unsuitable for large transactions, and more risky in a country which is poorly policed. A lot of people will be scammed and robbed while attempting P2P crypto transactions.

So while they won’t find everyone who has traded with cryptocurrencies, that is no comfort for those they have found.

You probably didn't read the memo. It clearly stated non-bank financial institutions as well. This includes mobile money and other digital money forms which are under regulation by the central bank.

In any case, given this direction, it is clear the Nigerian government is intent on banning use of money to trade with Bitcoin.

My argument holds.

Lol

I don't like BTC but if Nigeria prohibits cryptocurrencies, this is +1 for them, not -1

Wow, how is a Nigerian Princess supposed to make an honest living?

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