Nigeria’s government rails against crypto as naira plummets

Nigeria’s fiat currency is experiencing a significant decline in value against major foreign currencies, and the government is blaming cryptocurrency.

On Feb. 21, Binance stirred controversy within the Nigerian crypto community by imposing a price cap on the USDT P2P exchange rate as part of its compliance efforts.

In response to widespread backlash, the exchange quickly reversed this decision, allowing transactions to resume as usual.

While the intention behind this action was to ease tensions, it might have unintentionally worsened the situation for Binance.

This occurred as the government moved to block cryptocurrency platforms and specifically targeted the Binance website and a couple of other forex trading platforms, citing its association with Nigeria’s inflationary pressures.

Amidst mounting concerns, several Nigerian Binance users reported difficulties accessing the exchange’s application on Feb. 22.

These grievances emerged all while the Nigerian government had been instructing telecommunication service providers to block access to all cryptocurrency exchange platforms as part of its efforts to stabilize the country’s rapidly depreciating currency.

To quell user concern, Binance sent reassurance emails stating that while its platform experienced disruptions, operations on its app continued without impact.

The exchange emphasized the security of users’ funds and reiterated its commitment to maintaining dialogue with local regulatory authorities.

However, the situation escalated further when calls emerged for the outright ban of Binance within Nigeria. And, most recently, Nigeria’s House of Representatives Committee on Financial Crimes is looking to question Binance CEO Richard Teng for alleged terrorism financing and money laundering.

Before that, Presidential aide Bayo Onanuga criticized the company for its role in setting exchange rates for Nigeria, likening it to usurping the Central Bank’s authority. 

He called upon the Nigerian Economic and Financial Crimes Commission (EFCC) to take action against Binance and other exchanges, such as KuCoin and Bybit, in a bid to prevent further manipulation of the Naira.

Meanwhile, local Nigerian crypto platforms also reported being affected by the government’s restrictions. The Nigerian crypto community vehemently opposed the government’s move to ban crypto exchanges, denouncing it as yet another authoritarian response to the country’s challenges.

However, the Nigerian government has remained steadfast in its decision to block Binance P2P trading, signaling a broader crackdown on cryptocurrency trading activities in Nigeria. 

The move has raised concerns among stakeholders about its potential negative impact on innovation, investment, and financial inclusion in the country. Many fear that the government’s regulatory overreach would drive cryptocurrency trading underground, depriving Nigerians of access to digital assets and stifling technological advancement in the financial sector.

It’s worth noting that the Nigerian government previously banned cryptocurrencies in February 2021 before lifting restrictions in December 2023.

Is crypto a threat to the naira  

The Nigerian government’s harsh stance against cryptocurrency is not new.

In February 2021, the Central Bank of Nigeria (CBN) issued a directive prohibiting banks and financial institutions from facilitating transactions involving cryptocurrencies. The CBN cited concerns about money laundering, terrorism financing, and other illicit activities as the rationale behind the ban.

Despite the ban, Nigeria has remained a hotspot for cryptocurrency trading and adoption, as most of these traders have resorted to VPNs. The country’s tech-savvy youth, disillusioned with traditional financial institutions and attracted by the potential of digital currencies, have flocked to crypto platforms in large numbers.

However, recent developments suggest that the government is escalating its efforts to curb cryptocurrency use. Reports have emerged of authorities clamping down on crypto exchanges, arresting individuals involved in crypto-related activities, and freezing bank accounts suspected of facilitating cryptocurrency transactions.

The government’s crackdown coincides with a tumultuous period for the Nigerian economy, marked by persistent inflation, currency devaluation, and economic uncertainty.

The value of the naira has been on a downward spiral, losing significant ground against major global currencies such as the U.S. dollar and Euro.

Corruption persists 

Observers argue that the government’s hostility towards cryptocurrency stems from its fear of losing control over the financial system. Unlike traditional currencies, which are regulated by central banks and governments, cryptocurrencies operate on decentralized networks, beyond the reach of any single authority.

This decentralized nature of cryptocurrencies challenges the government’s ability to monitor and regulate financial transactions, potentially undermining its authority and control.

Moreover, some analysts believe that the government’s crackdown on crypto is a knee-jerk reaction to its inability to address the underlying economic challenges facing the country.

Rather than addressing structural issues such as corruption, inadequate infrastructure, and overreliance on oil revenue, critics blame the government for scapegoating cryptocurrencies as a convenient distraction from other failures.

At the time of writing, the cost of virtually all essential commodities — from cement to sachet water — has skyrocketed in Nigeria, and civil servants now struggle to afford basic needs such as food and clothing. 

In recent weeks, Nigerians have taken to the streets with placards to organize peaceful protests in favor of crypto. For them, cryptocurrencies offer a lifeline in an economy plagued by severe corruption, inflation, lack of accountability by government officials and currency instability. 

Despite the current government-induced gloom and uncertainty in Nigeria’s web3 space, crypto will continue to see adoption by the youth, as it provides a means to preserve wealth, access global markets, and engage in financial transactions with greater privacy and autonomy.

In response to the crackdown, some members of Nigeria’s crypto community have called for greater advocacy and education to promote understanding of digital currencies among policymakers and the public. 

A more nuanced approach to regulation is needed, they say. Focusing on investor protection and market integrity could unlock the full potential of cryptocurrencies while mitigating risks associated with their use.