When Nigeria’s Central Bank governor, Olayemi Cardoso, linked the loss of valuable tax revenues totalling US$ 26 billion through Binance, the country’s federal government opened a new battlefront with crypto platforms.
- The prosecution of Binance executives – Nadeem Anjarwalla and Tigran Gambaryan – began what would be known as ‘the blitzkrieg on cryptos and fintechs’.
- The federal government in Nigeria has justified all these clamp downs as necessary deterrents to financial fraud and irresponsible currency speculation.
- The Naira’s fall against the greenback continues unabated and the Nigerian government is under intense pressure to salvage it.
Nigeria has more than 13 million Cryptocurrency users, the largest in Africa. The country’s local media reports that more than US$ 59 billion is traded within P2P crypto platforms in the country every year. However, some industry experts have claimed that the exact figures are ten times higher.
A great volume of crypto transactions is not limited to popular platforms such as Binance or Kucoin. And while crooks have infested many unregulated avenues, defrauding individuals through pump-and-dump schemes, it does not make for the government to believe that these incidences can cripple the local currency in any meaningful way.
The government’s action in cracking down on P2P platforms that could be easily regulated and harmonized works against their motive. If indeed crypto platforms have their own share of fraudulent individuals and activity, outright banning does not dissuade the country’s citizens from pursuing other shadowy platforms which would be even more prone to cyber crime.
The multiple restrictions sanctioned by the Central Bank of Nigeria since last year are meant to centralize financial operations for easier supervision. The tussle with Binance has been largely viewed as an attempt to identify a scapegoat for the government’s fiscal failures.
The Naira’s Doom
It is only reasonable for traders globally to use a medium of exchange that is stable and universally acceptable. It is also reasonable that they would abandon a medium of exchange that is prone to collapse and state tinkering. By limiting traders’ choices, one can only expect a great exodus of valuable investments in the country’s financial pipeline.
Austrian economist F.A Hayek once said that currency competition exists “to impose upon existing monetary and financial agencies a … much needed discipline by making it impossible for any of them … to issue a kind of money substantially less reliable and useful than the money of any other.”
The Naira’s doom cannot be blamed on the existence of cryptocurrencies and exchange platforms such as Binance. Monetary policies are made substantially in the Central Bank, and should the local currency suffer devaluation, it would be unfair to blame traders for something they do not control.
Binance and other crypto platforms, most recently Kucoin, have ditched trading in their platforms using the Naira. This does not help the local currency at all. The current financial system is not a closed one, but a globalized one. Cryptocurrencies are an accepted form of exchange for many developed currencies around the world.
By being unable to trade using the local currency, Nigerians who are known for their entrepreneurial spirit, are locked out unless they can use currencies that can trade on crypto platforms. When this happens, the never ending dip of the Naira happens worsens because the demand for forex goes up.
For most Nigerians experiencing the pain of a depreciating currency-the Naira shed more than five percent of its value against the USD in May, according to official figures- cryptocurrencies represent a medium of exchange that the government cannot control. When monetary policies are made to conform with the state’s appetite for largesse, it does not take long before the public mistrusts the stability of the local currency. This has happened in other places where hyperinflation of local currencies has resulted in the clamor for dollarizarion.
From an international business view, other foreign entities will be hesitant to invest in Nigeria. Why wouldn’t they? If the government would one day point an accusing finger at free enterprises, levelling tax evasion and fraud charges when its clear something deeper is at play – that is a monumental risk that an investor cannot override easily.
When blaming cryptos and phantoms for currency devaluation becomes the continental norm, other countries will follow suit. Nigeria is not the only country facing a currency slump. Last year, the Kenyan shilling was performing poorly and predictably, the Central Bank of Kenya blamed it on dollar hoarding.
For many governments in Africa, it does not resonate that individual actions like hoarding the greenback, or seeking alternative currencies is only a resulting consequence of reasonable fear. The fear is that governments have mismanaged the currency supply and accompanying economic activities. This fear is shared not only by local investors, but also foreign investors who cannot pump their money where they are unsure of currency and policy stability.
What Next?
My argument follows that the popularity of cryptocurrencies lies essentially in the friction between the citizens and their currency. Trying to appeal to patriotism and loyalty, accusing traders of manipulating currencies solely controlled by gov’t cannot reinstate the soundness of a currency.
Looking back at the events that have happened to Binance since last year, it’s clear that the Nigerian government has no particular solution to their currency crisis. When they banned cryptos, then unbanned them, then reconsidered banning them again – suggests that their actions are done purely for political expediency. To show the public that something is being done, when the currency’s fate was sealed by the Central Bank’s controlled exchange rates that did not reflect the market’s supply and demand realities.
It is time for African governments to realize that their bloated fiscal overtures are responsible for unattractive monetary policies set by their respective central banks. Blaming alternative currency traders for speculation is tightening the noose around our calls for investment. Speculation is what traders do. It is the lifeline of their activity. An evaluation of risks and gains. Criminalizing it diminishes our affinity to competitiveness, hurling us out of the international free market.
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