HOW NIGERIANS ARE TACKLING THEIR CURRENCY CRISIS

Disclaimer: In no way does this article constitute financial advice. It is solely based on the writer’s opinions and research. 

Nigeria finds itself in a dire monetary situation. In 2020, the country experienced an inflation rate of around 13%, which is in keeping with the rate’s tendency to be in the double-digit figures. Year after year, the Nigerian people must witness a substantial decline of their purchasing power. Despite a strong increase in GDP over the past twenty years, inequality and poverty have remained rampant with up to 40% of Nigerians living below the poverty line.

The current sanitary crisis and falling oil prices have led to a 20% drop of the country’s GDP. Foreign investments and international trade have been notably hindered, which has caused a shortage of foreign currency reserves. This has led Nigerian banks to limit certain cash withdrawals, which in turn is affecting liquidity.

When a currency can no longer be trusted as a reliable store of value and a tool for commerce, hard assets like gold and silver increase in demand. Due to availability and storability issues, traditional assets have been overlooked by Nigerians, to the benefit of more unorthodox asset types. In fact, the country has become one of the largest markets for cryptocurrencies, with one-third of its citizens having owned some in 2020, according to a survey.

The Nigerian authorities are starkly opposed to the mainstreaming of cryptos. On February 5, the Central Bank of Nigeria ordered financial institutions to terminate accounts associated with such digital assets. The motives behind this crackdown remain unclear, but officials have stated that any violation of this decree would be met with “severe regulatory sanctions.

During a plenary session, Senator Sani Musa mentioned that “the technology is so strong that I don’t see the kind of regulation that we can do. Bitcoin has made our currency almost useless or valueless.” This may come some way as to explaining the authorities’ true motivations for wanting to ban cryptos.

Luckily for Nigerians, crypto technology cannot be banned; the authorities can only control its interaction with the regulated banking system. Since this decision, Bitcoin is still available on certain exchanges for Nigerians but with a 36% premium. It is worth noting that a similar ban was attempted in 2017, but it only had the adverse effect of increasing the usage of cryptos.

On his RT News show The Keiser Report, early Bitcoin advocate Max Keiser stated:

The government of Nigeria, like individuals, have a problem when it comes to Bitcoin because it doesn’t fit any model that they have ever seen. At first there’s resistance, and then they notice that their paper money becomes increasingly worthless, and that’s true of any paper money. It’s been true for 300 years. All fiat money goes to a loss of 99.9% of purchasing power without exception. And now, what smart individuals and corporations, and increasingly now smart countries are doing is stockpiling Bitcoin, by using flaring gas rakes to convert it into the hardest money ever known in human history, and that is Bitcoin.

The absence of human control means that cryptos could serve as a hedge against inflation, unsound judgment and poor decision-making by centralised authorities. In a recent report, the Federal Reserve Bank of St. Louis identified the key advantages of cryptos and decentralized finance: efficiency, transparency, accessibility and composability. The organisation also added that the technology “offers exciting opportunities and has the potential to create a truly open, transparent and immutable financial infrastructure.

The Nigerian authorities are not battling a lone crusade against crypto; India recently dabbled with the idea of banning the technology altogether, but eventually ended up ditching the project. Other countries have either introduced an outright ban or placed limitations on the technology’s ability to be acquired by their citizens. Max Keiser had the following to say about attempts made at censoring the technology:

“I’m not worried and I’ll tell you why. What’s going to happen […] is that countries that are now experimenting with Bitcoin in a big way, what will happen is the countries will attempt to ban, and the population will simply secede, and they’ll use it anyway. What that will do is beautiful, it’s built into the Bitcoin protocol, it’s almost divine. In response, the government will print more fiat money and that will only drive the price of Bitcoin higher and drive more people into Bitcoin.”

Certain downfalls of cryptos are a legitimate cause for concern, such as their use in illicit activities, and extreme price volatility. Nevertheless, the resourcefulness of the Nigerian people has shown that this digital asset type can be used as a shield against irresponsible central bank policy, corporate greed and authoritarian tendencies. In essence, it seems like the Nigerian authorities must either accept their gradual loss of power caused by cryptocurrency adoption, or override their citizens’ freedom by attempting to ban the technology.

Léon Eversham
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