Crypto Blamed as Scapegoat for Naira's Woes, Will the Ban on Crypto exchanges revive the Naira?

By: Damian Okonkwo

Introduction

The Nigerian Naira has been on a protracted downward spiral in 2024, leading to finger-pointing and a search for possible causes. Recently, the Nigerian government has pushed the blame to the activities of P2P crypto traders creating high demand for dollars across the trading platforms. Will the ban on Crypto exchanges solve the Naira's woes？

Naira's Woes: A Multitude of Factors

The Naira's struggles stem from a confluence of factors outside crypto. These includes:

1. Global Oil Price Fall: Nigeria is heavily reliant on oil exports. The recent decline in global oil prices has significantly reduced government revenue, weakening the Naira's value.

2. Dollar Scarcity: Lower oil revenue has limited Nigeria's access to foreign exchange, making it harder for businesses and individuals to obtain dollars, further pressuring the Naira

3. High Inflation: Rising inflation erodes the purchasing power of the Naira, discouraging investment and economic activity.

Crypto: Not the Main Culprit

While cryptocurrency use has grown in Nigeria, it's unlikely to be a significant contributor to the Naira's woes. The total volume of crypto transactions in Nigeria is dwarfed by the official foreign exchange market. Additionally, the CBN ban primarily targeted centralized exchanges, not peer-to-peer transactions, which are harder to regulate.

The Ban's Impact: Double-Edged Sword

The CBN's ban on crypto exchanges aimed to curb capital flight and protect Nigerians from potential scams. However, it also:

Pushed Nigerians to Foreign Exchanges: The ban drove some Nigerians to use foreign crypto exchanges, making it harder for the CBN to track financial flows.

Stifled Innovation: Nigeria has a vibrant tech scene, and the ban hinders the development of a local crypto industry that could contribute to economic growth.

Reviving the Naira: A Holistic Approach

The path to a stronger Naira requires a multi-pronged approach:

● Diversifying the Economy: Reducing reliance on oil by promoting other sectors like agriculture and manufacturing can provide a buffer against oil price fluctuations.

● Increasing Foreign Investment: Creating a more attractive investment climate can entice foreign investors to bring in much-needed dollars.

● Taming Inflation: Implementing sound fiscal and monetary policies to curb inflation is crucial for stabilizing the Naira.

The Future of Crypto in Nigeria

Nigeria's crypto landscape remains in flux. While the ban may not be the main culprit behind the Naira's struggles, a more nuanced approach is needed. Fostering innovation and creating a regulatory framework for crypto could be more beneficial than an outright ban. Reviving the Naira requires addressing the underlying economic issues and exploring new opportunities, not scapegoating new technologies.