May 8, 2024/CSL Research
According to news reports, in a continuous bid to combat exchange rate manipulation and illegal dollar trading, the Federal Government has announced plans to remove the Naira from all peer-to-peer crypto platforms.
This decision follows the government’s intensified efforts to regulate Nigeria’s cryptocurrency market. In February 2021, the Central Bank of Nigeria (CBN) imposed restrictions on banks regarding crypto-related transactions. In a significant shift later in December 2023, the newly appointed CBN Governor, Olayemi Cardoso, reversed this ban, signaling a more open stance towards cryptocurrencies in the country. However, recent events have cast a shadow over this newfound openness.
Following a sharp devaluation of the Naira this year, the Nigerian government
accused Binance, a major cryptocurrency exchange, of facilitating currency speculation that contributed to the plummeting value of the Naira. On 20 February, Binance’s peer-to-peer (P2P) platform showed no buy or sell advertisements for Nigerians, effectively halting the exchange of USDT, a dollar-denominated stablecoin, for the Naira. By the following day, access to major cryptocurrency exchanges was blocked on major telecommunication networks in the country.
Subsequently, the CBN was reported to have summoned two executives from Binance to Nigeria who were detained by the authorities, and one of them was later reported to have escaped. These developments have created uncertainty regarding the future of cryptocurrencies in Nigeria.
According to a report released by Chainalysis, a blockchain data platform, in October 2023, Nigeria ranked second overall on its Global Crypto Adoption Index and remains Africa’s largest crypto economy. The increasing adoption of cryptocurrencies by Nigerians reflects the dearth of high yielding investment options amidst a significant decline in the purchasing power of households caused by multiple devaluations and high inflation.
Investments in potentially high yielding ventures such as cryptocurrencies, despite associated risks are seen as a hedge against inflation. Though we agree that the government needs to discourage all speculative demand of the Naira to keep the currency stable, we reiterate that the long-term stability of the currency is hinged on increasing the supply of FX through sustainable channels.
