Cryprocurrency as a financial inclusion driver in Nigeria

The future of financial services is digital, and the future is now. As you know, the internet has rapidly transformed our world. For better or worse, it has changed how we live, work, play, and interact with each other. Due to the growth of digital technology and increased access to the internet, there is a shift from traditional financial services to digital financial services. This shift is happening in Africa and across all the world's continents, including developed countries such as Europe and America.

The evolution of digitalization started decades ago when computers revolutionized global banking operations by offering more efficient ways of handling electronic payments. Digitalization has led to online banking, which designs automated banking processes to provide customers with easier access to their accounts 24/7. As time passed, mobile technology also evolved into smartphones, which added an advantage to customers. Smartphones offer more convenience through mobile banking applications such as Zelle Money Transfer App.

In 2017, the world's financial system handled investment, capital, and reserve assets worth $296 trillion. The global financial system is how financial services are provided to countries worldwide. It consists of financial intermediaries (or institutions), markets, and instruments involved in saving, investing, and lending activities at a global level. The global market encompasses the different brokers and dealers. They trade securities on behalf of clients or for their accounts.

With the growth in global financial markets, there is an increasing need for safe and efficient transactions across national boundaries. Cryptocurrencies have the potential to satisfy this requirement without involving third-party intermediaries like Western Union or MoneyGram. Cryptocurrency transactions are instant, require no registration (thus reducing the risk of identity theft), and have low transaction fees.

Nigeria has seen rapid growth in mobile money transfers through services like Paga. Cryptocurrencies can provide a logical next step toward safer, more efficient transactions within and outside Nigeria's borders.

While financial services institutions adopt innovative technology like Artificial Intelligence and Big Data analytics to drive customer experience, investment, and process efficiency, cybersecurity remains an area of focus for all institutions globally. As you are probably aware, cybersecurity is a primary focus for governments, businesses, financial institutions, and individuals worldwide. The Nigerian government is taking steps to combat cybercrime and prepare its citizens for the digital age by developing a national cybersecurity strategy. Cybersecurity strategy will involve raising awareness of cybersecurity across all levels of society and promoting the adoption of safe practices like strong passwords and data encryption.

The Central Bank of Nigeria recently issued a circular prohibiting financial institutions from providing services to cryptocurrency exchanges in Nigeria. This circular illustrates the main threat that cryptocurrencies pose to Monetary Policy and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT).

Individuals and businesses can use cryptocurrencies for money laundering, financing terrorism, and other illegal activities. Since transactions are decentralized, no intermediary is required for a transaction, thereby making it difficult for law enforcement agencies to track illicit activities through cryptocurrencies.

All financial institutions must comply with the CBN’s recent circular prohibiting financial institutions from providing services to cryptocurrency exchanges in Nigeria. Cryptocurrencies also provide an avenue for moving funds outside the country without complying with foreign exchange regulations.

Today, access to formal financial services has nearly doubled globally, with 69 percent of adults having a bank account compared with 51 percent in 2011. Despite this growth, Nigeria still ranks low in financial inclusion – with only 36 percent of the adult population having a bank account and the country accounting for the second-largest unbanked population in the world (after India).

It is essential to take a step back and assess whether cryptocurrencies are needed at present in a developing economy like Nigeria, especially when they seek to challenge globally accepted payment systems. Before we get carried away with the excitement of cryptocurrencies, some crucial points to consider. For instance, is it a good idea for Nigeria to have a currency not backed by a physical asset? Will this cause hyperinflation? Are our citizens ready for such volatility? What about the investors who invest in coins that turn out fraudulent? And finally, will this affect monetary policy as we know it?

In addition, there is no central authority regulating these currencies. Therefore, it is vital that the CBN monitor and regulate the cryptocurrency industry before it becomes too big to control.

Financial inclusion means that individuals and businesses have access to valuable and affordable financial products and services that meet their needs. Transactions, payments, savings, credit, and insurance are delivered responsibly and sustainably. Financial inclusion is a means to an end, not an end. Financial inclusion is not a magic wand that solves all financial problems.

Cryptocurrency as technological innovation has its fair share of benefits. However, Cryptocurrency should consider its volatility before allowing it to compete on equal grounds with existing monetary systems. When considering the use of Cryptocurrency as a financial inclusion driver, those drafting out the rules and regulations for using these technologies in Nigeria would be mindful of maintaining an effective balance between controlling its volatility. While also encouraging its adoption to ensure a smooth transition from adopting it as a novelty to using it as a medium of exchange.