Labeling cryptocurrency a scapegoat, similar to blaming parallel market traders for the Nigerian currency’s woes, will not solve the underlying problems. Proactive preparation for consequential innovations is far preferable to reactive measures. The blockchain and crypto industry is still young, and there’s time for Nigeria to establish regulatory frameworks to govern its participants.
Nigeria’s Currency Falters Despite Crackdown on Crypto
In a move reminiscent of past actions, Nigerian authorities, initially led by the National Security Adviser’s office, targeted global cryptocurrency exchanges in a crackdown that began in February. The accusation is that crypto platforms are enabling currency speculators who are blamed for the naira’s rapid depreciation against the U.S. dollar.
Measures taken include instructing telecom operators to block crypto exchanges and arresting Binance executives Tigran Gambaryan and Nadeem Anjarwalla. These steps initially appeared to be validated when the naira staged a notable recovery, even being named the best-performing currency at one point in April.
However, the naira’s resurgence proved short-lived, ending the first half of 2024 as one of the worst-performing currencies. Disappointingly, the currency’s struggles have not led to the release of Gambaryan or an acknowledgment by Nigerian authorities that cryptocurrency trading was not the sole cause of the naira’s decline.
This outcome is unsurprising to some, as a similar situation unfolded a few years ago when Godwin Emefiele, then-governor of the Central Bank of Nigeria (CBN), accused Abokifx, a website tracking parallel market exchange rates, of fueling the naira’s depreciation. Emefiele, as widely reported, argued that Abokifx’s activities were “undermining the economy.”
Following threats from Emefiele, Abokifx, which sourced its data from street vendors, stopped publishing daily parallel market rates in September 2021. At the time, the naira traded at around 550 naira (NGN) per dollar on the parallel market, compared to the then-fixed official rate of under 450 NGN for every dollar.
Nigeria’s Naira Woes: Blaming Crypto Not the Answer
However, Abokifx’s suspension did little to halt the naira’s depreciation on the parallel market, where many Nigerian businesses obtain U.S. dollars. By late 2022, the naira traded at around 900 NGN per dollar, or double the official exchange rate. This case as well as that involving crypto platforms underscores one key point: the naira’s problems are deeply rooted, and neither cryptocurrency trading nor parallel market activity is the sole cause.
In fact, the rise of cryptocurrency use and Nigeria’s thriving parallel market for naira reflect a deeper issue that needs solutions. Labeling cryptocurrency a scapegoat, similar to blaming parallel market traders for the naira’s woes, will not solve the underlying problems.
Instead, pushing these narratives, as evidenced by Gambaryan’s detention, only creates further problems for Nigeria. The country’s image as a key investment destination is now under scrutiny as a result. As Binance CEO Richard Teng recently stated, Gambaryan’s continued detention “sets a dangerous precedent for all companies worldwide.”
This kind of warning from the CEO of a major global corporation does not bode well for a country seeking foreign investment to stabilize its currency. Such pronouncements can discourage others from investing in Nigeria, as a recent statement by the Blockchain Industry Coordinating Committee of Nigeria (BICCON) suggests.
BICCON, an umbrella body for Nigerian blockchain and crypto companies, claims foreign investment in the country’s Web3 sector has declined due to the impasse between Binance and the Nigerian government. The group also argues that collaborations between Nigerian entities and foreign companies are now at risk. A mass exodus of foreign companies would likely dampen the growth prospects of Nigeria’s blockchain industry.
Beyond the potential loss of investment to competitors, the Gambaryan case could strain Nigeria’s relationship with the U.S. government. To illustrate, some U.S. groups have already called for designating Gambaryan’s detention as a hostage case, potentially prompting the U.S. to employ harsher tools and negotiating tactics than it might use with an ally like Nigeria.
If such a scenario unfolds and the naira depreciates further, many Nigerians could blame the anti-crypto narrative for causing job losses and lost investment opportunities.
What Nigeria Should Have Done and What It Still Needs to Do
Authorities’ response to the perceived problem of Nigerians using crypto exchanges could have been more nuanced. While summoning executives or requesting temporary measures from platforms was reasonable, detaining them without due process was a clear overreach. Democratic principles demand adherence to the law, even in seemingly urgent situations.
Instead of scapegoating crypto, officials should acknowledge the naira’s potential overvaluation, as former Nigerian Vice President Yemi Osinbajo did in 2021. Understanding the root cause is crucial for devising effective solutions. This shared understanding is also essential to prevent different Nigerian agencies from offering conflicting explanations for the naira’s decline.
Looking ahead, Nigerian authorities should consider proactive regulation for emerging technologies like artificial intelligence (AI). AI will undoubtedly reshape Africa, and just as with past innovations, bad actors will likely exploit it. However, a crackdown on AI companies or bans on models like ChatGPT or Gemini (as seen with other technologies) will be ineffective.
Proactive preparation for consequential innovations is far preferable to reactive measures. The blockchain and crypto industry is still young, and there’s time for Nigeria to establish regulatory frameworks to govern its participants.
