The Apex bank recently issues a circular to banks and other financial institution instructing then not to hold or transact in virtual currency . The circular which was issued from the office of the bank’s director of financial policy and regulation and signed by Mr. Kelvin Amugo, stated that the move was necessitated by money laundering and terrorism financing risks inherent in operations of virtual currencies.
The circular in parts stated that:
“Transactions in VCs are largely untraceable and anonymous making them susceptible to abuse by criminals, especially in money laundering and financing of terrorism. VCs are traded in exchange platforms that are unregulated, all over the world. Consumers may, therefore, lose their money without any legal redress in the event these exchanges collapse or close business.
“The attention of banks and other reporting financial institutions is hereby drawn to the above risks and you are required to take the following actions pending substantive regulation or decision by the CBN;
Ensure that you do not use, hold, and /or transact in any way in virtual currencies;
Ensure that existing customers, that are virtual currency exchangers, have effective AML/CFT controls that enable them to comply with customer identification, verification and transaction monitoring requirements;
Where banks or other financial institutions are not satisfied with the controls put in place by the virtual currency exchangers/customers, the relationship should be discontinued immediately; and any suspicious transactions by these customers should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU).”
What is Virtual Currency ?
Below are some of the definitions of Virtual Currencies also known as Cryptocurrencies.
The European Central Bank defined virtual currency as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”.
The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury, defined virtual currency as “a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency”. In particular, virtual currency does not have legal tender status in any jurisdiction”.
The European Banking Authority defined virtual currency as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically”
Virtual Currencies are digital currencies, they are not physical currencies and thus could only be used to facilitate peer to peer exchanges via electronic platforms (internet). There are no central control of cryptocurrencies and it is not a legal tender in any country. VC is controlled only by its developers who denominated the currencies in units of their interest and it is acceptable by member of virtual community who have signed up for it.
Some of the popular Virtual Currencies are Bitcoin, Ripples, Monero, Litecoin, Dogecion, Onecoin, etc and are being used on the internet.
Advantages of VC
• It is a growing world currency and its patronizers are excited with the fact that it is not controlled by any central monetary authority.
• VC is cheap it does not come with card cost and other banking charges associated with other electronic wallets
• It is safer that the conventional online wallet account. You only get notified after fraud has been committed on your conventional online account whereas with VC it can be configured in such a way that you will authorize transaction on your mobile phone before it is approved for payment.
Disadvantages of VC
• The absence of central control and the fact that cryptocurrencies bypasses traditional clearing houses makes it a potential vehicle for money laundering, terrorist financing, tax evasion and even fraud.
• The growth of VC may pose a huge treat to financial control and stability in the economy as the established monetary policy instrument will not be effective against VC because of its virtual and borderless nature.
• Virtual Currency also pose a treat to the stock market and other legal financial investments. The Security and Exchange Commission also recently issued a statement on VC saying “the public is hereby advised to exercise extreme caution with regard to digital (crypto currencies) as a vehicle of investments. Given that these instruments and the persons, companies or entities that promote them have neither been authorized, nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business.”
“Any policy response to VCs will need to strike an appropriate balance between forcefully addressing risks and abuses while avoiding overregulation that could stifle innovation”. IMF