The failure of the naira has prompted Nigerians to seek alternatives, but the Nigerian government is quick to deflect blame onto others. This time, they have targeted Binance as the culprit for the naira’s crash, leading to the detention of two of its employees.
It is high time for the Nigerian government to take responsibility for its years of mismanaging the currency. Furthermore, it should embrace currency competition instead of searching for scapegoats.
The decline of the naira has been a long-standing issue, but tensions escalated in February after its most recent crash. Bayo Onanuga, President Bola Tinubu’s adviser on information and strategy, accused Nigerian citizens of being unpatriotic for turning to cryptocurrency instead of the naira. He even suggested banning crypto to prevent further devaluation.
Subsequently, authorities accused Binance of illegally moving $26 billion out of the country and invited the company to discuss the matter. Binance sent two employees, Tigran Gambaryan and Nadeem Anjarwalla, who were then placed under house arrest. Anjarwalla managed to escape, but Gambaryan, an American citizen and former IRS agent, remains in the country. Both individuals now face charges including tax evasion, money laundering, and providing financial services without a license.
Unfortunately, this behavior by Nigerian officials is not uncommon among governments worldwide. Instead of creating stable currencies that people willingly adopt, governments often resort to imposing restrictions that trap people with unreliable currencies.
As Nobel laureate F.A. Hayek explained, currency competition serves to discipline existing monetary agencies by preventing them from issuing less reliable and useful money compared to alternatives. Therefore, it is unsurprising that Nigerian citizens have turned to cryptocurrencies, particularly stablecoins, to gain exposure to the US dollar. The Nigerian government has failed to provide a reliable store of value, leading the public to seek better options.
By imposing restrictions on these alternatives, the Nigerian government is compounding its mistakes. It fails to recognize that cryptocurrency use is a consequence, not a cause, of the naira’s failure. The government is punishing its own citizens by trapping them on a sinking ship.
The situation does not bode well internationally either. In recent years, the Nigerian government has taken conflicting actions, creating a central bank digital currency, causing cash shortages, banning and then lifting the ban on cryptocurrencies, blocking access to exchanges, detaining foreign citizens, and now considering another crypto ban. This inconsistency will likely deter many companies, including cryptocurrency developers, exchange platforms, and traditional financial institutions, from doing business in the country. Consequently, Nigerian citizens will bear the brunt of the government’s mistakes due to a lack of investment.
The Nigerian government desperately needs the discipline that competition can provide. Taking accountability for mismanaging the naira starts with allowing the market, not the government, to determine the exchange rate. The government’s fluctuating price controls have wreaked havoc on the economy. In fact, if the government had not interfered with exchange rates, it is unlikely that Binance would have been blamed for the naira’s crash, especially since part of the accusation was that Binance manipulated the rates.
Additionally, the Nigerian government should abandon its central bank digital currency. Reports indicate that the central bank has invested significant time and resources in building and maintaining the CBDC. This effort would be better spent focusing on the naira itself, especially since it took a government-induced cash shortage to achieve a meager CBDC adoption rate of 1 percent.
As Hayek wrote in 1976, liberating oneself from the notion that a country must rely on its government-issued currency opens up intriguing possibilities. Nigerian citizens have already recognized this, as evidenced by their adoption of cryptocurrencies. Now, the question is whether the government will follow suit.
The government can continue its years of currency mismanagement or embrace competition and strive to create a currency that all citizens willingly embrace.