Project Materials

THE EFFECT OF CBN CRYPTOCURRENCY BAN ON THE ECONOMY OF NIGERIA

Chapter one

INTRODUCTION

1.1 Background of the Study

The global financial system is undoubtedly embracing the present transformation from physical to practically virtual currencies via technology. This tsunami has brought about the emergence of cryptocurrency.

Cryptocurrency is described as a digital record-keeping device that employs balances to track trading obligations and is publicly available to all traders.

Some examples of crypto currencies are Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash, Neo, Iota, Dash, Qtum, Monero, and Ethereum Classic.

A cryptocurrency system is defined by two parameters: money growth rate (µ) >= 0 and transaction fee rate (τ) ≥ 0. Since the introduction of Bitcoin in 2009, other private cryptocurrencies have emerged.

Since the inception of bitcoin, it has received a lot of media attention, with a total market value of 128.78 billion USD in 2019. It uses a technique known as ”Blockchain”.

Nakamoto (2008) defines bitcoin as a peer-to-peer electronic cash system. The cryptocurrency peer-to-peer system is built on blockchain, allowing transactions to occur directly between users without the need for an intermediary (Hameed & Farooq 2016; Grech & Camilleri 2017).

It enables for anonymous transactions between parties, so neither party knows the other’s true identity (Dierksmeier and Seele, 2016). This may be important since the full details of each participant’s transaction on the bitcoin blockchain are publicly available to other users (Bech & Garratt, 2017).

Unlike traditional currency, which is issued at a predetermined frequency by each country’s Central Bank, cryptocurrencies such as Bitcoin are mined using a fixed issuance mechanism, with the quantity of Bitcoins to be mined halving every year.

Despite the hazards involved with this currency, its growth rate is both benevolent and demanding. Governments are caught off guard by its rapid expansion.

However, the overwhelming benefits of cryptocurrencies have enabled them to serve as a source of employment and financial opportunity for both employed and unemployed people.

As it allows people to meet their own financial needs with ease. Furthermore, the presence of cryptocurrency enterprises in developing nations such as Nigeria generates additional job prospects for its population, as unemployed citizens can find work. These tremendous benefits have made an impressive contribution to the Nigerian economy.

Nigeria, West Africa’s economic hub, has been stagnant for decades. The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, and the Minister of Finance, Kemi Adeosun, later confirmed that Nigeria’s economy has been officially declared to be in a technical recession based on the new trend figures released.

Without a doubt, Nigeria’s economy has fallen short of its residents’ expectations. Because the unemployment rate never falls to a significant level, inflation and currency devaluation have become a daily occurrence in the economy (Jaboen 2016).

This devastated state of the economy has always presented a challenge to citizens as they seek palatable and unpalatable opportunities to ensure their daily survival.

However, the evolution of cryptocurrency has provided the impoverished with more than simply a means of survival. The majority of Nigerians took advantage of this astounding opportunity to compensate for the lapses or gaps caused by the bad economy.

Regardless of the foregoing, the Nigerian government imposed an unprecedented ban on the usage and trading of cryptocurrencies in its economy (country) on February 5, 2021.

However, these distasteful and impromptu executions have had an impact, impression, and perception on citizens.

Thus, the purpose of this study is to identify, examine, and analyse the impact of the CBN cryptocurrency ban on Nigeria’s economy.

1.2 Statement of The Problem

According to Aderonke Alex-Adedipe et al (2021), Nigeria has the second largest cryptocurrencies market among other countries. Nigerians for an instance in the last 5 years traded over $500 million worth of bitcoins.

However the central Bank of Nigeria released a ban on the trade of Crypto in Nigeria, as it urged all commercial banks and other financial institutions to identify individuals who deal in cryptocurrency and close down their accounts.

In the recent times, this have been the circumstance and issue experienced by the public in Nigeria as many lost access to their accounts, some lost their jobs thereby adding to unemployment rate, while countless more who depend on crypto transactions to satisfy daily demands are left helpless (Pecarb 2021).

The Execution of certain drastic and unregorous national decision has the ability to build, improve, and destroy the economy of developed and undeveloped countries as whatever that affects citizens’ finance will reciprocally affect the economy (Zeback 1996). Thus, this study tries to assess the effect of cryptocurrencies ban on Nigeria Economy.

1.3 PURPOSES OF THE STUDY

The study primarily looks into the impact of cryptocurrency bans on the Nigerian economy. Other separate aims are:

Examine the influence of cryptocurrencies on the Nigerian economy.

Identify the repercussions of the cryptocurrency ban for the Nigerian people.

Find out how this harsh execution would damage the Nigerian economy.

1.4 RESEARCH QUESTION.

What is the impact of cryptocurrencies on the Nigerian economy?

What effect does Nigeria’s restriction on cryptocurrency transactions have on the country’s economy?

What are the ramifications for Nigerians as a result of the cryptocurrency ban?

How does the restriction on cryptocurrency transactions effect the Nigerian economy?

1.5 Significance of the Study

The outcomes of this study would be extremely relevant to the CBN and the Nigerian government as a whole in terms of the consequences of such harsh action on cryptocurrency transactions.

This report is also a good resource for learning about cryptocurrencies and their economic benefits. However, this study will also be useful as a source of information for anyone planning or conducting a cryptocurrency-related study.

1.6 SCOPE OF THE STUDY

This paper explores the effect of cryptocurrencies ban by CBN on Nigeria economy utilising four selected commercial banks in Abuja as a case study.

1.7 Definition of Terms

Cryptocurrency is a type of digital currency that can be used to purchase goods and services, but it uses an online ledger and strong cryptography to secure transactions.

The economy is concerned with the production, distribution, and trading of products and services, as well as their consumption by various agents.

In general, it is characterised as “a social domain that focusses on the practices, discourses, and material expressions associated with the production, use, and management of resources.”

The Central Bank of Nigeria (CBN) is the central bank and apex monetary authority of Nigeria, established by the CBN Act of 1958 and began operations on July 1, 1959.

Government is the political direction and control exercised over the acts of members, residents, or occupants of communities, societies, and states; the management of a state, community, etc.