It is now about three months since the Central Bank of Nigeria cut-off Bitcoin and broad cryptocurrency from its banking networks. The adoption of Bitcoin had earned Nigeria the Bitcoin Nation within the African continent. But instead of the crypto market cooling as a result of the bank, the thing has ramped up significantly: “Data retrieved from Usefultulips (a Bitcoin analytic data provider) shows that the usage of Bitcoin’s peer to peer trading in Nigeria surged by 27% since the CBN directive took effect about 85 days ago, as Nigerians moved about $103 million worth of Bitcoins on just Paxful and LocalBitcoins channels alone.”
The robust bitcoin trading activity in Nigeria has earned the country the title of Africa’s Bitcoin Nation. A 27-year-old Nigerian office worker who was spotlighted by the AFP, Chigoziri Okeke, described how he first invested in cryptocurrencies five years ago with the intention of just making a payment. When his crypto wallet’s value increased by 10% in a few short days, however, he was hooked and started directing a percentage of his salary toward the market. Today, this investor’s crypto portfolio is worth USD 50,000, comprising various digital assets.
Nigeria’s apex bank had effected two huge policies: (1) ban of cryptocurrency exchanges in Nigeria (2) introduction of Naira4Dollar where people get N5 for every dollar wired from outside Nigeria. But besides these two, there is another one: you cannot receive $10,000 within your domiciliary account in any Nigerian bank account in a month, provided that payment is initiated within Nigeria, teller deposit or bank transfer.
Yes, despite these changes, Naira has not found its moments. Why? It has to do with market frictions. The use of cryptocurrency “override the political complications of official channels. The global reach of cryptocurrencies avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors” as Association of Bureau De Change Operators of Nigeria (ABCON) noted.
In the review, ABCON pointed out that cryptocurrency transactions were faster than conventional transfers, which require passing through SWIFT, the interbank messaging system that handles cross-border payments.
“These exchanges override the political complications of official channels. The global reach of cryptocurrencies avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors.
“Thus, while we commend the CBN for introducing the package of N5 for $1 transfer, it can be seen that the challenges exceed non-payment of foreign currency by the IMTCs and the exchange rate.
“Strategies that satisfy the most sensitive of these advantages of cryptocurrency exchanges must be introduced to redirect flows to the official channel,” it stated.
ABCON also expressed concerns over the country’s unemployment rate, stressing: “The government must apply radical approaches with the use of conventional and unconventional economic and political tools to redress the trend.”
Yet, you can do everything but people will continue to find the path to least friction. If you live in the US and want to wire $10,000 to Nigeria, good luck. The official channel will ask for a social security number, employer name, etc. But with Bitcoin, no one asks for those. That complicates the whole system as Bitcoin can indeed make money laundering possible since the transactions are out of the official channels.
From what is happening, it is now evident that exchange friction overweighs the benefits associated with being paid in US dollars via IMTOs in Nigeria. Why that has removed exchange float, it has not changed much in the system since people continue to use Bitcoin and transfer via non-official channels.
Nigeria’s biggest mistake is to make everything more non-official by pushing the cryptocurrency exchanges to peer-to-peer where they become more opaque to the government’s high voltage searchlights. Ideally, the government could have embraced the new crypto startups and use regulations to shape them. Your dollar-for-dollar remittance is not doing it. Your Naira4Dollar has not helped. What could help is bringing the banned channels to come under your regulatory domain so that the participants can enjoy whatever that system gives them, while you exert more controls. Unless we do that, we will continue to struggle on this.
And CBN does not need to listen to the Association of Bureau De Change Operators of Nigeria (ABCON) which has has asked the “Central Bank of Nigeria (CBN) to introduce measures that will neutralize the positive effects of cryptocurrencies as a channel for diaspora remittances”. The fact is this: CBN does not have the power or capacity to do just that. The ABCON industry is being disrupted and they need to advance to be relevant.
No matter what the government does via financial engineering to help the Naira, there is only one thing that will boost the Naira: economic diversification, and that will likely come via improved productivity. Unfortunately, productivity will not happen without fiscal federalism. In other words, Nigeria needs to produce and make things, and unlock comparative advantages within states. It is only when we can do that would we see the Naira ramp up. Anything less will be gimmicks which will fade over time.
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