In a devastating blow to the Nigerian economic system, the naira hit an all-time low of N1,009.05 per greenback on the Nigerian Autonomous International Trade Market (NAFEM) on December 8, 2023. This marked the end result of a disastrous week for the foreign exchange market, with the naira experiencing unprecedented every day losses.
Amidst this dire trade price scenario, the parallel market struggled to keep up its stronghold, with the naira buying and selling at N1,250 to the greenback on the identical day. Sadly, there appears to be no finish in sight.
The Nigerian financial authorities have been grappling with the relentless assault on the naira by senseless cryptocurrency merchants, who constantly undermine the efforts to save lots of and stabilize the native foreign money. Regardless of vital interventions by the Central Financial institution of Nigeria (CBN), the NAFEM witnessed a disheartening scene on December 8.
The USDT:NGN foreign money pair on the Binance platform has emerged as one of many main drivers of the alarming depreciation of the naira. USDT, or Tether, is a crypto stablecoin designed to keep up a 1-1 worth with the US greenback. It serves as a bridge between conventional fiat foreign money and cryptocurrencies, providing a handy instrument for unregulated foreign money buying and selling.
The attraction of USDT lies in its unregulated nature, on-line accessibility, and lax banking rules. This has made it a beautiful supply of revenue for people with web entry and a few naira to spare. Nevertheless, its profitability hinges on the continual depreciation of the naira.
Merchants of all types have flocked to the Binance platform, benefiting from the chance to revenue on the expense of the naira. What is actually disheartening is that no different nation on the planet permits its foreign money to be cannibalized in such a fashion.
Moreover, the proprietor of Binance has lately been charged with cash laundering in the US, going through a staggering $4.2 billion wonderful and a jail sentence. It’s regarding that such an entity has such management over the foreign money price of a nation as nice as Nigeria.
Recognizing the potential risk of cryptocurrency to the naira, the CBN, below earlier management, imposed a ban on its buying and selling. This motion managed to stem the speedy decline of the naira, which has misplaced 78% of its worth because the present authorities took workplace in Could 2023.
The brand new management should act swiftly to handle this concern. And not using a ban or strict rules on cryptocurrency buying and selling, the federal government can be unable to implement efficient measures to stop the speedy decline of the naira. The crypto phenomenon ensures that demand at all times surpasses provide, rendering any financial injections or coverage implementations futile.
Because it stands, anybody with web entry can change into a possible overseas trade seller, unconstrained by regulatory measures. Changing naira to USDT ensures earnings, creating a synthetic demand that strains authentic companies and burdens the plenty.
Foreign exchange sellers depend on a gradual provide of {dollars}, which USDT supplies by permitting them to repurchase the foreign money by way of a chosen account. The soundness of USDT makes it a great platform for this cycle of shopping for and promoting, additional straining the naira. Consequently, the value of USDT on the Binance platform has change into the de facto determinant of the naira’s worth.
To stop the trade price from hovering to N2,000 per greenback within the parallel market, the federal government should take pressing motion. The imposition of a ban on economically dangerous crypto buying and selling, notably the USDT:NGN pair, by way of the Nigerian banking system, needs to be thought of. Strict sanctions needs to be imposed on these participating in such actions.
The CBN must also resume non-deliverable forwards and freeze accounts related to crypto buying and selling. Moreover, implementing a coverage that requires enhanced due diligence on firms concerned in giant cash transactions inside and out of doors the nation is essential.
By ravenous the supply of this crypto inflow and impeding the conversion course of, the federal government can obtain much-needed stability for the naira. This could curtail the substitute demand and compel foreign exchange sellers to depend on typical banking channels.
Pressing measures have to be taken to avert the catastrophic depreciation of the naira to N2,000 per greenback within the shortest attainable time. Solely by way of decisive motion can Nigeria regain management over its foreign money and defend its economic system from additional hurt.
