In recent developments, the Nigerian Naira faced a record low, closing at N1,009.05 per dollar on December 8, 2023, marking a historically challenging week for the forex market. This alarming situation, exacerbated by the parallel market trading at N1,250 to the dollar, calls for strategic actions amidst the relentless influence of cryptocurrency traders on the Naira’s stability.
The focal point of concern revolves around the USDT (Tether), a stable coin pegged to the U.S. dollar, facilitating seamless conversion between traditional fiat currency and cryptocurrencies. As traders flock to platforms like Binance to convert Naira to USDT, concerns arise about the impact on Nigeria’s economic well-being.
Exploring the reasons behind USDT’s thriving presence, it becomes evident that the Binance platform plays a pivotal role, allowing anyone to convert Naira to USDT and engage in trading activities. Notably, the recent legal troubles of Binance’s owner, charged with money laundering in the U.S., raise questions about the platform controlling Nigeria’s currency rate.
For Nigeria’s leadership, the urgency to address this issue is clear. Without a ban or stringent regulations on cryptocurrency trading, the government risks being unable to control the rapid decline of the Naira. The crypto phenomenon ensures that demand consistently outpaces supply, creating artificial demand that puts a strain on legitimate businesses and the nation as a whole.
To counteract this trend, potential solutions include an immediate ban on economically harmful crypto trading, particularly the USDT: NGN pair, along with stiff sanctions against engaging in such activities. The Central Bank of Nigeria (CBN) could consider resuming non-deliverable forwards and freezing accounts linked to crypto trading. Additionally, implementing policy measures requiring Enhanced Due Diligence (EDD) on companies moving large sums of money within or outside the country may prove effective.
By starving the source of bulk crypto transactions and frustrating the conversion process, the government aims to achieve the much-needed stability of the Naira. This approach would curtail the fluid source of artificial demand, leaving forex dealers with no option but to source through conventional banking channels.Urgent action is imperative to prevent a fatalistic depreciation of the Naira to N2,000/$ in the shortest possible time. Fred Ebomwonyi, an investment banker and financial analyst based in Abuja, emphasizes the need for swift and decisive measures to safeguard Nigeria’s economic future.
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