CBN Protecting Investors From Collapse Of Crypto-Currency Investment-Experts

Some Finance and Economic experts on Sunday said that the decision of the Central Bank of Nigeria to ban banks from facilitating transactions on Crypto-Currency was aimed at protecting investors from collapse of Crypto-Currency investment.

The Analysts said the recent ban is a move by the apex bank to balance the need between regulating an innovation they have no knowledge of as well as protecting investors from what could end up being a fraudulent innovation.

The apex bank on Friday warned banks against dealing in Crypto-Currencies or facilitating payments for crypto-currency exchanges.

The CBN move came a day after South Africa’s Financial Sector Conduct Authority warned Crypto Investors to ” be prepared to lose all of their money” following collapse of Bitcoin trading company.

Global financial regulators have expressed worries that this digital currency has a way of being used to fund activities outside the financial system.

Responding to the development, Johnson Chukwu, the Chief Executive Officer, Cowry Asset Management said the CBN considers crypto-currency as a channel to finance illegal activities.

He said, “We know technology is always ahead of regulation, because technology creates the need for regulation.

“If you have a very stiff regulatory environment, you will stifle innovation. So if you look at the said guideline, they were very smart in trying to balance the need between to regulate an innovation they have no knowledge of as well as protect the society from something that could actually end up being a fraudulent innovation. It is a very difficult thing.”

He added that the world has found digital currency as a tool for illegal activities.

“It is something the regulators have to update their knowledge and try to understand advancement in technology.

” Because in all instance of regulation, it is the practice that lead to creation of regulatory policies, because without those practice, you cannot create a regulation.

“And if you create regulation to forestall advancement or adoption of new ideas, you will stifle innovation,” he added. P.f. number no finish.

The Cowry Asset boss said the CBN is trying to protect depositors and the Nigerian banking community from the possible collapse of the crypto-currency investments. 

The analyst said, “Crypto-currency are basically digital assets that investors  have no claim on any physical asset in the event that the value of your investment collapses, adding that investors “have no recourse to anybody.

“Crypto currency has a record of moving in a very degenerating manner. You see the likes going up and suddenly coming down and again these are not physical assets. They are derivatives in fact they are basically digital assets. 

“So you do not have any claim on any physical asset in the event that the value of your investment collapses, you have no recourse to anybody.

“So, one of the reasons why the Central Bank may have taken this position is clearly to protect investors, protect the general public and maintain financial system stability.

“I feel that any currency that is not backed by reserve or any statement of good faith by a nation to pay that currency has question mark on it.”

Also, the President of the Association of Capital Market Academics of Nigeria, Uche Uwaleke, said in a mailed response that the apex bank measure was a temporary  action taken to access the possible threat crypto-currencies might pose in the financial system.

Uwaleke said, “Given the weighty nature of the directive, I want to believe that the CBN must have consulted relevant stakeholders including the Bankers Committee before taking the decision.

“I am inclined to believe that it was well thought through and not a unilateral decision. The fact is that what the CBN could see in a squatting position, many cannot see standing. 

“So, I think the directive should be seen in the light of this fact that the CBN may have information which may not be available to the public.”

But the Uwaleke who is also a Professor of Capital Market Studies faulted the apex bank for not providing reasons for the clamp on Crypto-Currency in the Friday circular.

He said, “In my view, the flaw in that circular is that it did not state the reason why the apex Bank is taking that course of action. It should have done so especially if it’s to do with fraudulent activities and threats to financial system stability.

“I believe this measure is only temporary. Given that cryptos have come to stay, the CBN and the SEC should come up with a regulatory framework for crypto asset trading in Nigeria.”