Naira: CBN And Currency Speculators
By Kazeem Akintunde
The Naira, Nigeria’s currency is under tremendous pressure, no thanks to the antics of speculators in the forex market. In the last seven months since the federal government decided to merge the dual exchange rates in the country operated by the former administration, the Naira has lost value by over 100 per cent. In the last two weeks however, it has been on a free fall and it is clear that some smart Nigerians are playing the system and are not likely to stop unless the Federal Government moves against them.
The Bola Tinubu’s administration took over the reign of government when the Naira exchanged for the dollar at N770/$. But few days ago, it exchanged at over N1800/$. There are fears that it may soon surpass the N2000/$ mark. Financial experts have attributed the free fall to a combination of several factors among which is the activities of unregulated P2P crypto market.
To the uninitiated, the P2P crypto market is a digital assets platform created by Binance as a window for Peer To Peer transactions which allows users to advertise interest to sell or buy currencies of their choice. A fantastic idea in a world that has gone digital. But the process is now being manipulated and has been blamed for the free fall of the Naira witnessed in the last two weeks.
In Nigeria’s unregulated P2P crypto market, a manipulative tactic known as ‘spoofing’ casts a long shadow on the whole process. Here, individuals or groups place large buy or sell orders on the platform without intending to execute them. This creates a false illusion of high demand or abundance, influencing others to buy or sell at manipulated prices. This deceptive practice, often used in conjunction with pump-and-dump schemes, preys on unsuspecting investors, leaving them with significant financial losses and as in the case of the Naira, it has resulted in creating Fear of Missing Out (FOMO) and price depreciation and devaluation.
The previous CBN guidelines, while aiming to curb banking involvement with crypto, left the P2P space largely unsupervised and was taken over by unprofessional people profiting at the back of the country. This regulatory vacuum allows spoofing and other manipulative tactics to flourish in the P2P market, jeopardizing the integrity of the market and eroding investor’s confidence. A review of the existing guidelines is crucial to address this sad situation. Implementing stricter measures for P2P platforms, robust transaction monitoring systems, and clear penalties for spoofing would deter such activities and foster a safer trading environment.
However, CBN’s intervention is not just about protecting investors but also safeguarding Nigeria’s financial stability. The potential of the crypto industry cannot be ignored, but its growth must be accompanied by responsible regulations. Addressing spoofing and other manipulative practices through a revised regulatory framework is essential to ensure that the sustainable and healthy development of Nigeria’s P2P crypto market is entrenched.
The Buhari administration had in 2021, completely banned crypto currency trading in the country due to fear that it may affect forex trading in the country negatively. But in a move that surprised many, in 2023 and on the eve of its departure coupled with its history of being averse to crypto currency trading, a new law to tax gains on digital assets like cryptocurrency was introduced. The crypto tax comes from a series of amendments to the 2022 Finance Act.
According to the Finance Act, there is now a 10% tax on profits on digital assets. Section 3(a) of the Capital Gains Tax Act is amended by inserting the phrase “digital assets” after the word “debt” as follows: “Subject to any exceptions provided by this Act, all forms of property shall be assets for the purposes of this Act, whether situated in Nigeria or not, including options, debts, digital assets, and incorporeal property generally.”
Digital assets include cryptocurrencies, non-fungible tokens, and other tokenised assets. In spite of the tax imposed, the federal government was still not comfortable with the operations of the crypto traders and in September 2023, Nigeria’s Securities and Exchange Commission (SEC), placed a disclaimer on Binance Nigeria Limited, one of the crypto trading companies in Nigeria, saying that the platform was “neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal”.
Despite the warning by the regulatory agency, the firm continued its operation, attracting huge patronage especially among urban youths and suspected speculators and money launderers. Aside suspicions of economic sabotage, officials also speak of national security concerns as the platforms are often patronised by other criminal groups including for payment of ransom.
Now, Law enforcement agencies are saying that the digital asset platforms are also routinely deployed for the manipulation of forex values through fake deals that serve to prop up values or cause a fall.
Binance has had similar accusations of currency manipulation and unethical conduct leading to sanctions in many countries and an ongoing lawsuit in the United States. Indeed, there has been calls on the government to ban the activities of the company in Nigeria. If the government decides to invoke a ban on the digital asset trading site, it would be treading the path of countries like Malaysia, France and Malta, among others.
Already, the Office of the National Security Adviser (ONSA), and the EFCC have announced that it was joining forces with the Central Bank of Nigeria to clamp down on currency speculators and other economic saboteurs.
Presidential aide, Bayo Onanuga, had also lashed out at Binance, saying that it was blatantly setting exchange rate for Nigeria, thereby hijacking CBN’s role. “Binance, facing regulatory showdown in many countries, and causing disruptions in the currency market, should not be allowed to dictate the value of the Naira, not on its crypto exchange platform. Other crypto platforms such as Kucoin, and Bybit should be banned from operating in our cyberspace. FX platform, Aboki, should be re-banned.
“The EFCC and the CBN should move against these platforms trying to manipulate our national currency to Ground Zero. Crypto should be banned in our country or else this bleeding of our currency will continue unabated.”
I do not envy Opeyemi Cardoso, Governor of the Central Bank of Nigeria (CBN) and his team at the apex Bank. They have been making concerted efforts in recent times to tackle forex speculation and its effects on the Nigerian currency. But they are up against tech-savvy guys that are ready to game the system for their benefits. Crypto trading has its benefits and unless we are ready to ban it all together in Nigeria, criminals and money launderers will continue to try to outsmart the system.
The CBN should consider identifying many of these tech-savvy boys and give them jobs to fish out their likes. The Gen-Zs of this world are super smart kids who understand the system far better than many of the old men and women managing the system now. The alternative would be to completely ban crypto trading in the country. But for now, the free fall of the Naira continues. However, I still believe that the CBN will come out victorious in its fight against currency speculators and traders.
