The Nigeria
Deposit Insurance Corporation (NDIC) has issued a special notice to all
banks, depositors and the public on digital currencies in the nation’s
financial market, warning of its implications as there is no substantive law
backing such a transaction, reports ITRealms.
NDIC, ITRealms
recalls originated from the report of a committee set up in 1983 by the Board
of Central Bank of Nigeria (CBN), to
examine the operations of the banking system in Nigeria and subsequently
recommended the establishment of a Depositors Protection Fund. Consequently
upon which the Nigeria Deposit Insurance Corporation was established through
the promulgation of Decree No. 22 of 15 th June 1988.
"1.0 INTRODUCTION
In view of the
concerns expressed by the National Assembly and the general public about the
incursion of Digital Currencies, the NDIC is issuing this warning to the users,
holders and traders in Digital Currencies, including Bitcoins,
Zcash, Monero and Litecoin, about the possible
financial, operational, legal and security related risks that they are exposing
themselves to.
2.0 DIGITAL CURRENCIES
Digital currencies are
unregulated electronic forms of monetary value that can act as means of
payment. A digital currency has no physical form and it is not issued by any
central authority and is thus exempted from government support. It is not
created, issued or guaranteed by a central bank. Digital Currencies are also
referred to as Virtual or Crypto Currencies. Specifically, digital currencies
are:
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.
ii. Not backed
by any physical commodity, such as gold.
iii. Not deposits
or instruments authorised by the CBN.
iv. Not
insured by the NDIC.
3.0 RISKS AND ISSUES FOR USERS AND TRADERS IN DIGITAL CURRENCIES
i. 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.
ii. 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.
iii. 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.
iv. 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.
v. 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.
vi. 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”.
vii. Negative Opinion
of Digital Currencies by the head of the World Bank
The head of the World
Bank compared crypto-currencies to “Ponzi schemes,”….. “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,” according to World
Bank Group President Jim Yong Kim.
4.0 COUNTRIES THAT BANNED TRADING OF DIGITAL CURRENCIES
i. Bangladesh, Nepal,
Ecuador, Bolivia and Iceland and Morocco have all banned Bitcoin in
their territories.
ii. South Korea, a
global centre for crypto-currency trading, said it would ban anonymous trading
of virtual currencies.
iii. China’s Central
Bank barred financial institutions from taking part in digital currency as well
as exchange trading of Bitcoin.
iv. The European
Banking Authority banned financial institutions from buying, selling or holding
digital currencies.
v. The central banks
of India and Mexico have issued a warning on the use of digital currencies.
vi. The central bank
of Russia are “…totally opposed to private money, no matter if it is in
physical or virtual form”.
5.0 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.”
6.0 POSITION OF NIGERIA DEPOSIT INSURANCE CORPORATION ON DIGITAL CURRENCIES
"The NDIC has equally warned banks and Nigerians, through several platforms to
stay away from digital currencies because the Corporation does
not provide insurance cover to risks and loses associated with trading in any
form of currency not issued by the CBN."
Nenye Dom/GEE
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