Nigeria is blaming Binance for the naira’s depreciation and has recently moved, in many steps, to clip the cryptocurrency platform’s wing.
From asking the exchange to restrict naira trades on its platform to blocking access to its website and other crypto platforms to arresting its executives, Nigeria is pressurising the crypto platform.
In an interview on Channels Television, Bayo Onanuga, special adviser to the president on information and strategy, who has been front-rolling conversations about Binance’s role in the naira’s depreciation, accused the firm of fixing foreign exchange in the country.
Read also: List of countries where Binance operations have been banned
He said, “We have saboteurs. Look at what Binance is doing to our economy. That is why the government moved against Binance. Some people sit down using cyberspace to dictate our exchange rate, hijacking the role of the CBN.”
He stressed that the country had to clamp down on the platform as it was fixing the rate and sabotaging the economy. He also recently disclosed that the government may impose a fine of about $10 billion on the platform.
Recently, Olayemi Cardoso, governor of the Central Bank of Nigeria, affirmed that the country is interested in the platform’s activities.
While announcing that $26 billion passed through Binance Nigeria from sources and users the bank cannot identify, he said, “They are concerned that certain practices go on that indicate illicit flows going through a number of these entities and suspicious flows at best.”
Sources close to Binance have since told BusinessDay that the Central Bank is not involved in its ongoing probe. They noted that the platform’s issues are with the Office of the National Security Adviser and revolve around illicit funds transfer.
The platform has since denied allegations of currency fixing. It said, “It is important to note that foreign exchange rates are influenced by various complex factors, which Binance has no influence on.”
What is Binance
It is an online exchange where users can trade cryptocurrencies and supports hundreds of the most commonly traded cryptocurrencies. It also provides a crypto wallet for traders to store their electronic funds. It has a global presence but is limited in certain countries, including the United States and the United Kingdom.
Read also: Nigeria wants Binance to pay $10bn fine
Why is the naira falling
The naira is falling because the demand for the dollar is more than its supply, and the country’s significant forex backlog compounds this. This situation has intensified pressure on the official and black markets, leading to a decline in the currency’s value.
Dollar flows to the country have fallen in the last few years due to declining investment, lower crude oil exports, and reduced diaspora remittance through official channels. Capital importation, consisting of Foreign Direct Investments and Foreign Portfolio Investments, has crashed to record lows.
Total capital importation into Nigeria stood at $3.89 billion in 2023, a far cry from the $23.99 billion that it attracted in 2019. This is exacerbating pressure on the naira.
Bismarck Rewane, chief executive officer of Financial Derivative, recently noted that low foreign exchange inflow and a lack of confidence in the national currency are responsible for the continuous fall of the naira.
He said, “So why is the naira falling? One low supply of dollars. When do you have low dollars? Anytime the supply is short, the price increases; that’s economics.
“The loss of confidence in the currency as a store of value. People are now putting all their money in dollars of domiciliary accounts or taking them out.”
He highlighted that increased fear is also fuelling the naira speculation, which also impacts the value of the naira.
Read also: Binance crackdown raises fresh concerns in crypto-crazy Nigeria
Also, the country’s forex reserve has taken a beating and is hovering around $34 billion. In August 2023, the central bank audited accounts revealed that the reserves included a $19 billion commitment in derivatives —slashing the liquid amount of the reserves.
According to JPMorgan, the country’s net FX reserve was $3.7 billion as of the end of 2022. Furthermore, Nigeria does not produce enough to meet local supply and export to neighbouring countries, which results in a continual need for foreign currencies, particularly the dollar.
The country’s record-high inflation is eroding the value of the naira, driving up the cost of goods and services. The naira used to appear strong before June 2023. According to the World Bank, Nigeria’s Central Bank had tried to restrict foreign exchange demand and keep the exchange rate artificially low before a policy redirection. This created a false narrative of a strong naira, but the apex bank could not keep up with its efforts met with declining FX supply from oil revenues.
The policy change of the CBN has now laid bare the perennial issues with the naira. The naira has since fallen from about N460/$ as of 14 June 2023 to N1548.25/$ as of March 1, 2024. The naira has plenty of demons, and Binance is probably not one of them.
It is not the first time the country has blamed a website for its currency woes. In 2021, the CBN accused Abokifx, a website that collates black market exchange rates of naira, of illegal activities that undermine the economy.
Godwin Emefiele, the former CBN governor, said the platform’s publisher, Oniwinde Adedotun, was involved in illegal forex trading. When the website was banned, the currency’s value in the parallel market was around N570/$. When Emefiele was suspended as governor in June 2023, the exchange rate was N750/$ in the parallel market.
“The government is focusing on the wrong thing in their effort to tackle the naira’s issue,” Chimezie Chuta, founder and coordinator of Blockchain Nigeria User Group, recently told BusinessDay.
Read also: Nigeria arrests Binance executives in renewed crypto crackdown
However, it is essential to note that Binance’s platform could have aided speculative activities, with many individuals using it for price discovery. Traders on the platform believe some people may have used it to manipulate the market with speculation.
Recently, the firm paused trading on its platform in Nigeria over price suppression. It claims to continuously monitor the market and stop the prompt removal of abnormal prices on its platform.
The platform has also been fingered in a couple of investigations around the world. In November, the firm agreed to pay US authorities $4.3bn in penalties after pleading guilty to criminal charges related to money laundering and violating international sanctions rules. But Nigeria is the first country to blame its currency devaluation on the platform.
Questions remain about whether Binance could have done better regarding speculative activities on its platform. Many industry players believe those activities may have thrived because of a lack of regulation.
“An unregulated space is one of the most dangerous spaces out there. There is no way you can tell the difference between funny actors and sincere actors,” Chuta added.
