Cryptocurrency: Towards Regulating the Unruly Enigma of Fintech in Nigeria and South Africa

Abstract

One of the most modern inventions of financial technology (FinTech) since after the global financial crisis of 2008 is the crypto or virtual currency/asset. Since the creation of the first cryptocurrency, the Bitcoin, in 2009, it is estimated that over five thousand variants of the Bitcoin and other cryptocurrencies have emerged. Virtual currencies have become widespread across the globe but their legal status and uses in various countries have remained uncertain. They have been variously classified as currencies, securities, properties, assets, commodities and tokens, and used as means of exchange but are not legally recognised as legal tender. In many jurisdictions their emergence was greeted with scepticism and express or tacit rejection by financial and securities markets regulators, but over time, owing to their increasing popularity, characteristics, positive and negative potentials, there has been a gradual shift towards their formal recognition and regulation. Regulatory authorities in many countries are now grappling with designing appropriate policy and regulatory framework for the crypto phenomenon. This paper interrogates the current legal status and efforts to regulate cryptocurrencies in two leading African nations, Nigeria and South Africa, and highlights the challenges of designing an appropriate regulatory framework for this enigmatic technology. The paper adopts the doctrinal legal research methodology, employing the descriptive, analytical, and comparative approaches. It follows a structured review and analysis of relevant extant legislation on currencies and securities in the countries to ascertain whether they cover cryptocurrencies. It then compares the current position of the law on the subject in the two countries. Bearing in mind that it may not be possible to totally ban dealing in cryptocurrencies, the paper concludes that regulation has become imperative. Drawing from the position on the subject in more developed nations, the United States of America (US) and the European Union (EU), this paper proposes a model of regulation of virtual currency not only for Nigeria and South Africa but also for other African countries.

The power of Bitcoin to attract investment in Underdeveloped Countries: A neoliberal perspective of Nigeria

“…The Central Bank of Nigeria (CBN), however, first had doubts about bitcoin, but over time, their perspective has changed and they now lean toward accepting and validating bitcoin. Nigeria seems to have adopted a new term proposing the word 'assets' in order to avoid the term 'currency' [9]. According to Cvetkova (2018), Nigeria neither regulates nor accepts cryptocurrencies as legal tender.…”

“…Nigeria, as one of the countries that undergo an economic crisis, is ranked fifth in the global world owning 11% of internet-connected Nigerians using cryptocurrencies, as Adesina (2020) quoted Ukwueze (2021) says how the people of Nigeria have a high passion for these virtual currencies and became one of the greatest users of cryptocurrency globally [9]. One in three Nigerians are reported using cryptocurrency by 2020.…”

“…Ozili (2023), who noted that other central banks, including Singapore, Ireland, Kenya, and Nigeria, published comments cautioning citizens that they utilize bitcoin at their own peril, supported this statement [38]. Nevertheless, the SEC's stance has evolved over time, and it is currently leaning towards the official recognition and validation of cry ptocurrencies [9]. Yemi Osinbajo, vice president of Nigeria, has also called for a less coercive approach from the government, one that would strictly control cryptocurrency transactions to address grave issues without "necessarily killing the goose that might lay the golden eggs" [39].…”

“…There is no doubt that Nigerians with international bank accounts are stopped from trading with cryptocurrencies [9]. With Nigeria's economy state where they undergo a 20% inflation [40], people have reported having trouble sending and receiving money.…”

“…The platform that they used digitally has provided a system where they could operate anonymously without any entanglement from the commercial banks or any other financial institutions. This excess has constituted another challenge on the use of cryptocurrency as it potentially eases the possibility of money laundering, terrorism, and many other criminal activities [9]. There are other countries who have shifted towards Bitcoin such as the Central African Republic that is considered the poorest country on earth.…”