NDIC, which is the Nigeria Deposit Insurance Corporation has just placed an explicit warning to Nigerians to steer off the popular and the fast rising bitcoin trading and its relations as it is not yet authorized in the country by the Central Bank of Nigeria and isn’t backed up by any law in the Nigeria’s constitution.
The Insurance Corporation also made further revelations stating how digital currencies are unregulated electronic forms of monetary value that can literally act as our conventional currencies in making transactions and payments; A digital currency has no physical form and it is not issued or controlled by any central authority and is thus exempted from government support.
Digital currencies are not created, issued or guaranteed by any Central Bank. Digital Currencies are also referred to as Virtual or Crypto currencies, NDIC added.
NDIC went further to pick point these facts behind the popular digital currency. According to the list,
- i. Neither currencies nor coins offered by any central bank like the Central Bank of Nigeria (CBN) or a Central Bank of any other country with authority to issue such currency.
- Not backed by any physical commodity, such as gold.
- Not deposits or instruments authorized by the CBN.
- Not insured by the NDIC.
Risk Involve Trading in Digital Currencies;
- Consumers are not protected when using digital currencies for payments: Digital currency ‘units or accounts’ are not recognized by the CBN and are not insured by the NDIC unlike bank accounts. There is no protection, refund rights or redress for users of digital currencies.
- Consumers can lose all their money due to Loss or Theft: Digital currencies are virtual money, stored in electronic medium called e-wallets and are vulnerable to losses due to loss of password, hacking, virus/malware attack etc. The loss of the wallet could result in the permanent loss of the digital currencies held in them.
- High price changes that could lead to zero value of the currency quickly: The inherent instability in the rates because digital currencies are not issued or backed by any government, with no investor protection and are not protected by deposit insurance. This exposes the users to potential complete loss of value.
- Absence of Authorized Exchange Platforms: Digital currencies are traded on exchanges established in various jurisdictions with unclear legal status. Consequently, the users of these platforms are exposed to financial, operational and legal risks.
- Misuse for criminal activities: It has being widely reported that digital currencies are used in illicit activities in several jurisdictions, including unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
- Negative Opinion of Digital Currencies by the world’s central banker: The head of the Bank for International Settlements labelled Bitcoin as “a combination of a bubble, a Ponzi scheme” and, due to the energy consumption required for mining it, an “environmental disaster”
- Negative Opinion of Digital Currencies by the head of the World Bank: Jim Yong Kim, World Bank Group President compared crypto-currencies to “Ponzi schemes. According to him “In terms of using Bitcoin or some of the crypto-currencies, we are also looking at it, but I’m told the vast majority of crypto-currencies are basically Ponzi schemes.”
List of Countries that Banned Trading in Digital Currencies
- Bangladesh, Nepal, Ecuador, Bolivia and Iceland and Morocco have all banned Bitcoin in their territories.
- South Korea, a global center for crypto-currency trading, said it would ban anonymous trading of virtual currencies.
- China’s Central Bank barred financial institutions from taking part in digital currency as well as exchange trading of Bitcoin.
- The European Banking Authority banned financial institutions from buying, selling or holding digital currencies.
- The central banks of India and Mexico have issued a warning on the use of digital currencies.
- The central bank of Russia are totally opposed to private money, no matter if it is in physical or virtual form.
Position of Central Bank of Nigeria on Digital Currencies
In 2017, the CBN issued a Circular warning Nigerians against the use of digital currencies, including bitcoin, ripples, litecoin. The CBN stated that:
“The CBN reiterates that VCs such as bitcoin, ripples, monero, litecoin, dogecion, onecoin, etc., and similar products are not legal tenders in Nigeria.”
The CBN directed banks to “Ensure that you do not use, hold, trade and/or transact in any way in virtual currencies