Mujib Ishola, Head of Payments Technology and Infrastructure for SystemSpecs, in this interview with EHIME ALEX, speaks on leveraging the proposed Central Bank Digital Currencies amid the bank’s clampdown on crypto transactions
You are one of the technology experts rooting for the introduction of digital naira. How ready do you think Nigeria is for this?
While one is unsure of the mode of implementation of Nigeria’s proposed Central Bank Digital Currencies, it surely is a good development. Yes, I have advocated for this for quite some time. I believe the CBN would implement the kind of Distributed Ledger Technology that is known as a permissioned blockchain, which would put the bank in firm control. Although this model is not ideal for crypto, especially for traders who prefer the anonymity the blockchain technology is known to provide, it is nonetheless an embracing stance. I am also a proponent of cryptocurrencies and believe that although the very concept of blockchain on which cryptocurrencies are built is for a decentralised system, there is the need for some form of regulation to check the possibility of some excesses and risks to the financial system. However, the CBN ban on the facilitation of crypto transactions by financial institutions was a wrong move. Cryptocurrencies are here to stay and it is better to take advantage of the developments for the benefit of one’s economy, as a regulator especially. Sitting on the fence or banishing existing players can never be the best approach. The best way is to get involved through collaborations.
Indeed, Nigeria is ready for conversation of the introduction of the digital naira. It would serve as a fiat-backed stablecoin, which would safeguard adopters from the vagaries of crypto, which is particularly known for its high volatility. It would also serve as a bridge between the various cryptocurrencies and fiat currencies. The digital naira also holds the promise of easing transaction monitoring across the ecosystem and empowering the apex bank and other regulators to be in charge of their transactions and stay in control of how capital, including those that are non-fiat, are moved within, into and away from the economy. The digital naira would have an impact also on Nigeria’s financial inclusion drive and encourage more people to go cashless.
For the regulator, however, the greatest advantage of having the digital naira would be the ability to track transactions, especially in the case of transactions seen as grey. With access to data from new sources, the government would be able to make additional income through taxation because the tax net would become wider. For adopters, the digital naira would go against the grain of the typical DLTs which are permission-less; so users of the digital currency would have to adjust to a new way of playing in the crypto space. This might also call to question some of the known benefits of cryptocurrencies, including the evasion from the intrusiveness of formal systems, reduction in transaction costs, elimination of middlemen, reduction of transaction time as well as increase in overall efficiency levels. The biggest issue for adoption by existing cryptocurrency users would likely border on trust for formal government institutions. However, on the flip side, a regulated system also comes with a renewed confidence that transactions are secured and in the case of any untoward activity, the defaulting party can be tracked and called to question.
What roles can key stakeholders, like the tech firms, play to hasten the introduction of digital naira?
Collaboration. One cannot overemphasise the importance of greater collaborations within Nigeria’s financial services ecosystem. I believe that there is so much more than can be achieved for stakeholders, and particularly customers, if we incorporate constructive win-win partnerships into our strategies. Several stories in the media have it that the CBN has reached out to certain players in the cryptocurrency space to assist with the introduction of its digital currency, leveraging the knowledge and experiences of players. As seen in the case of other countries that plan to introduce or have actually introduced the CBDC, it is known that it requires a lot of concerted efforts which would include a lot of research and tests before any form of scaling can happen. The test and pilots of the Chinese Yuan has, for instance, been on since 2014. The CBN surely needs to ensure it applies sufficient rigour before the digital naira is formally introduced. In that step also would be the need to pilot in key cities, likely in Lagos, Abuja, Port Harcourt and Kano. It is also key that Nigeria’s tech community has access to it on time, so that the diverse use cases possible also can begin to be validated. Once a conducive environment is created for crypto to thrive and to maximise the opportunities that would come with the digital naira, a lot of innovation would begin to emerge and drive growth within the economy.
The CBN ordered the closure of all accounts associated with cryptocurrency trading in the country since February, as a tech expert, would you say business has remained as usual?
All statistics available indicate that business, especially for organisations that actively facilitate crypocurrency transactions, has not remained the same. Imagine for a moment that your entire business model was uprooted by a single government policy. The CBN regulation back in February 2021 was one clear example of how important public policies can affect the economy – either positively or negatively. Some players within the crypto space have, however, remodelled their businesses. That does not take away the harsh reality from players who play actively and professionally in that space.
Before the CBN’s announcement took effect, a number of startups served as local exchanges, connecting sellers to buyers and vice versa. CBN’s order clearly drove buyers and sellers towards more P2P, which is considerably riskier for regulators because they would have no oversight whatsoever. P2P exchanges are known to be the oldest form of crypto exchanges and it has its manifestations on Telegram and WhatsApp; unfortunately this is where dealing in crypto exists currently in Nigeria – no thanks to the CBN regulation.
One of the results of that ban was also that, in some instances, a number of businesses considered moving, and a few actually moved to other markets in Africa – but of course, Nigeria remains the biggest market. One of the unusually untold implications of this is the loss of jobs. Also, it does not send comforting signals to the investment community.
What policy framework, if put in place, will help to lift the ban on cryptocurrency trading in Nigeria?
I believe that one of the policy frameworks to be implemented would be around Know Your Customers for facilitators of crypto transactions. This was a juncture we were before the recent CBN regulation, as a number of exchanges enforced the KYC requirements and thus got traders captured within the Nigerian financial plain. Truth be told, an efficient KYC system is crucial to fraud prevention in the financial industry; it provides the intelligence to prevent financial crime before they happen.
While it is safe to assume that at the beginning the CBN would not have a complete insight over all cryptocurrency transactions, it is important to implement a KYC model and other frameworks that will help to advantageously position the bank as opportunities come for greater regulation. It is vital to note the need to ensure that any framework implemented has a legal backing and that, where fraud is involved, partakers in the crypto space are still subject to the law of the land. To keep the system synchronised, the apex bank might also consider working with Nigeria Inter-Bank Settlement System and National Identity Management Commission to ensure that the Bank Verification Number and National Identification Number remain a rallying point for data aggregation within the industry. The frameworks to be implemented must also consciously improve the trust level existing for the bankers’ bank and other regulators.
Then, how can Nigeria position itself in the cryptocurrency space ahead of other countries?
The answer to this question is quite simple. I do not believe the government has a big responsibility to businesses than to create a conducive environment, which would drive innovation. Cryptocurencies have numerous use cases, a lot of which can transform living in Nigeria, from employing young people to improving lending, driving financial inclusion, enhancing access to credit, and so much more. The developer community, as well as entrepreneurs in Nigeria, should be empowered to tap into the opportunities that will come forth. Regulators must also always remember that innovation is always ahead of regulation and so should be accommodating, especially at the genesis of an innovation and not hurriedly wield the big stick, especially at the cradle of an innovation.
Bitcoin is a highly volatile, highly risky investment; as such some tech experts believe it is gambling. How would you advise Nigerian investors?
Every kind of investment has its inherent risks, about which every investor must be aware. When putting money in any cryptocurrency, the rule is to make one’s findings. Do your research. There are different drivers, which influence the fluctuation of prices of investments of different kinds all over the world; this is the same for cryptocurrencies as well. It could be quite easy to jump on the bandwagon. I usually discourage people from getting involved in crypto just because someone else is. Be sure to do your findings, understand the use cases for the coin you are supporting and such other info before you take the dive. Also, now that almost everyone is an expert in such matters, potential investors must be careful who they speak with, to avoid a situation in which they would be wrongly guided. I cannot say it loud enough: do your research.
Let’s say the ban on cryptocurrency trading is revisited and lifted by the CBN. What will this mean for the Nigerian economy?
It would create greater opportunities for traders to achieve more with money. It would further facilitate international trade, especially in the face of the downward slide of the value of naira. It would create employment opportunities for numerous unemployed people in Nigeria. With even further endorsements and steps by relevant government stakeholders, especially through the facilitation of an enabling environment, more services and products would come to live within the Nigerian economy. Each of these points noted have positive ripple effects for everyone within the economy.
