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Can Nigeria’s Cashless Policy Drive Increased Bitcoin Adoption?

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The widespread adoption of Bitcoin and altcoins continues to increase globally, as their importance to today’s financial system cannot be overemphasised. From top companies accepting them for payment of goods and services to nations investing their funds in Bitcoin, cryptocurrencies are now an important asset class that is here to stay. This is why, despite their volatile nature, cryptocurrencies remain one of the most sought-after investment assets, store of value, and hedge against inflation.

Unfortunately, this was not the case when Bitcoin was created in 2009, as the digital asset faced criticism from many analysts and legislators who needed help to grasp the idea behind its value. This situation also led many financial analysts to predict that Bitcoin and cryptocurrencies will crash quickly within a few years. However, in a twist of fate, the digital asset has shaken off the criticism while remaining the shining light in the $900 billion crypto market.

However, despite the increased adoption of cryptocurrencies in Europe and many parts of the world, Africa and Asia need to catch up. For example, crypto transactions and related services remain banned in Asia’s largest economy – China. Unfortunately, the story is the same in Africa’s largest economy- Nigeria, where its Central Bank has prohibited financial institutions from rendering or offering any form of crypto-related services since 2021 due to a perception that its citizens’ were inappropriately using cryptocurrencies. Surprisingly, this has not slowed down adoption amongst its citizens, as blockchain analytics company Chainalysis rates them as the top crypto adopter in the continent.

In December 2022, the Central Bank of Nigeria (CBN) announced an updated cashless policy that will drastically reduce the cash withdrawal limit of both corporate and individual account holders in 2023. 

However, the question on the lips of many crypto analysts today is whether this new policy will increase Bitcoin’s adoption in Africa’s crypto capital. However, before we analyse the possibilities, it is crucial to examine Nigeria’s monetary policy, why it clamped down on cryptocurrencies in 2021, the eNaira, and what the future holds for cryptocurrencies in Africa’s most populous nation.

How Nigeria Is Gradually Transforming Into a Cashless Nation

How Nigeria Is Gradually Transforming Into a Cashless Nation

Source: Unsplash

Since 2012, the CBN has continued to drive the nation towards a cashless policy, as it believes that a paradigm shift away from physical cash would reduce banking services cost and improve its monetary policy. 

The CBN also feels that Nigeria shifting away from utilising too much physical money will strengthen its economy and reduce illicit financial-related crimes like armed robbery, kidnapping, ransom payment, and terrorism financing. This is necessary even as both big and small crypto organisations, such as, suggest that you duly adhere to the crypto regulations of any nation.

To achieve the proposed cashless society, the apex financial institution, in collaboration with financial institutions in the country, has continued to encourage citizens to utilise alternative channels like internet banking, mobile banking apps, USSD, POS, and even the eNaira. Alternatively, the financial watchdog has continued to support many Fintechs springing up in the west African nation as it remains focused on its drive toward digitalization. 

However, the success of the cashless society push in the country has been astronomical, as the nation has moved from about N47 billion in POS transactions in 2012 to about N6 trillion today. It has also witnessed an impressive leap in electronic transfers from a paltry N3 trillion in 2012 to about N300 trillion in 2022. This progress has been facilitated by about 920,000 POS terminals, 14,000 ATMs, and 1.4 million money service agents, all operating within the jurisdiction of the west African economic hub.

Today, Nigeria’s push towards a cashless society remains at a fast pace, despite the drawbacks facing it. However, whether they fully achieve this goal in the future or not, there is no doubt that the policies in place are gearing Africa’s economic giant into a true cashless nation.

Understanding the Central Bank of Nigeria (CBN) Updated Cashless Policy

In a circular released to the general public on the 6th of December, 2022, the CBN intimated Nigerians that individuals will now be limited to withdraw only N100,000 naira weekly, while corporate organisations’ cash withdrawal limits will not exceed N500,000 via Bank ATMs. It also stated that the maximum cash withdrawal limit via POS terminals is also capped at N20,000 daily. However, according to the CBN, individuals and corporate organisations willing to withdraw cash above the new limits will have to pay processing fees of 5% and 10%, respectively. 

Alternatively, in the letter directed to all Deposit Money Banks (DMBS) and financial institutions operating in the country, the CBN also stated that third-party cheques exceeding N50,000 would no longer be eligible for payment over the counter. At the same time, it maintains the existing laws on clearing cheques above N10,000,000. 

However, before this CBN announcement, the financial watchdog released new currency notes of N200, N500, and N1000 denominations to the public in November 2022. According to its Governor- Godwin Emefiele, the release of the new notes was aimed at combating counterfeiting, mopping excess liquidity, and improving the effectiveness of monetary policy tools on inflation. The CBN Governor concedes that the amount of cash outside the shores of the banks was more than the amounts in the bank. However, to curb this menace, the apex financial body announced a 90-day window for Nigerians with cash stash to return them to the banks to get new notes. 

In conclusion, while it is too early to decipher the effect of the new monetary policy on the Nigerian economy, the CBN has recovered almost N2 trillion barely two months after the naira re-design. This means it has been able to reduce the N2.7 trillion outside the bank to less than N900 billion.

The Nigerian eNaira: What the Future Holds for the Unfancy and Unpopular CBDC

In October 2021, Nigeria became one of the 25 countries touting the idea of a Central Bank Digital Currency (CBDC) to launch one, as it released the eNaira to the public. Its launch came after the CBN released a directive in  February 2021 banning all crypto-related activities in the country. The message also instructed all banks and financial institutions operating within the country to stop offering crypto-related financial services immediately.

According to the CBN, the use of cryptocurrencies in Nigeria is a direct contravention of existing financial law, as it has become a tool for illegal financial activities in the country. The financial watchdog, in their defence, also stressed that while Central Banks can issue Digital Currencies, cryptocurrency issuance is by unknown and unregulated entities. 

Central Banks can issue Digital Currencies, cryptocurrency issuance is by unknown and unregulated entities.

Source: Pexels

Unfortunately, after more than a year of launching the eNaira, the CBDC has failed to live up to expectations. Today, less than 1% of Nigerians are using it, which is disappointing compared to an average of about 27% of its population trading cryptocurrencies, despite the country’s ban. 

To increase its adoption and popularity, the CBN has also offered multiple incentives to users, including offering a discount scheme for tricycle users. Alternatively, in August 2022, the CBN opened the project to citizens without bank accounts to drive its adoption high.

Today, while the CBN continues to drive Nigeria into an entire cashless nation, it encourages citizens to utilise e-payment channels like internet banking, mobile banking apps, USSD, POS, and eNaira to conduct their banking transactions. However, unfortunately, the eNaira is still a struggling CBDC, unfancy and unpopular amongst many Nigerians.

Can Nigeria’s Cashless Policy Drive Increased Bitcoin Adoption?

Can Nigeria's Cashless Policy Drive Increased Bitcoin Adoption?

Source: Unsplash

According to financial analysts and business experts, the new cashless policy can hurt Nigeria’s economic environment, as its informal sector is primarily driven by physical cash. This is why there have been cries for an extension of the local currency-swapping deadlines, with the country’s lawmakers also imploring the CBN to review its cash withdrawal limits. But, on the other hand, the CBN wants Nigerians to embrace the ailing eNaira at this point, as the apex body believes that digital currencies can help the citizens scale through these periods of high cash demand. 

However, on the contrary, this uncertain period has now seen the price of the leading cryptocurrency Bitcoin, go up higher than its average global price on local crypto exchanges like NairaEX and Quidax. Recall that, on the 31st of January 2023, Bitcoin traded for $38,000 on local crypto exchanges in Nigeria. At that price, the digital asset’s value is 40% higher than its global average price of $23,000. 

According to many crypto analysts, this price surge is not far from Nigeria’s new cashless policy, limiting cash withdrawals and creating demand for digital currency. Unfortunately, while the financial watchdog would have preferred this new demand for digital assets to go towards its CBDC, it has instead increased the demand for Bitcoin in Nigeria.

Earlier in January, the Nigerian House of Representatives Committee on Capital Markets and Institutions briefed the public on its plans to pass a law recognizing digital currencies as investment capital. In his statement, the chairman of the committee, Babangida Ibrahim, disclosed that the committee would soon pass a law allowing cryptocurrencies to thrive in Nigeria. If and when this happens, the news will be met with applause in Africa’s crypto capital, as the current restrictions have been antagonistic towards crypto adoption in the country.

This surging demand for Bitcoin and proposed legislation has led to crypto analysts pondering how it will positively affect the adoption of cryptocurrencies in the country, factoring in the new cashless policy. However, it is worth noting that while the rally around Bitcoin is higher today due to increased demand and the new cashless policy, the situation is temporary. This is because when the new currency swap process works itself out in a short period, and citizens can stabilise cash demands, bitcoin may fall back to its original position amidst low demands.

Albeit, if Nigeria’s lawmakers can finally pass a bill legalising cryptocurrencies, this will increase Bitcoin adoption and can affect its global position. This bill will allow financial institutions to help the crypto market thrive by providing crypto-related services while boosting the country’s economy. The passing of this bill will also increase citizens’ confidence in Bitcoin and crypto assets and thus will massively increase their adoption in Africa’s economic hub.

However, as things stand now, Nigeria’s new and updated cashless policy is driving demand for Bitcoin and increasing adoption. Whether or not this will change anytime soon, only time will tell.

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