Nigeria Targets Cryptocurrency In Bid To End Naira Freefall

Binance, the world's largest cryptocurrency exchange, is pausing operations in Nigeria's naira currency as the government puts cryptocurrency businesses under increasing scrutiny.

The decision came after authorities in Africa's largest economy imposed restrictions on cryptocurrency exchanges as part of attempts to stem the decline in the value of the local currency.

Nigeria's central bank governor Olayemi Cardoso said late last month that cryptocurrency exchanges were conduits for money laundering.

He pointed out Binance as the biggest culprit.

"Certain practices continue that indicate illicit flows through several of these entities," Cardoso said.

“In the case of Binance, in the last year alone, $26 billion has passed through Binance Nigeria from sources and users we cannot adequately identify.”

Changpeng Zhao, who was a director of Binance, pleaded guilty to violating anti-money laundering laws in the United States.

With the naira weakening almost daily, cryptocurrency exchanges have been seen as a way for Nigerians to protect their money against the currency's decline.

Since the government floated the naira in May, the currency has fallen from around 410 naira to the dollar to around 1,600 naira to the dollar at the official exchange rate.

At the end of February, one dollar was exchanged for up to 1,900 naira on the black market.

Officials have accused cryptocurrency exchanges of distorting exchange rates, contributing to the weakening of the naira.

Binance did not immediately respond to AFP's request for comment on the allegations.

But in an email sent to its Nigerian users, the crypto giant said it would shut down all its naira-based services on March 8.

"This affects only NGN services, services and products can continue to be used for other available cryptocurrencies," the crypto giant states in the email seen by AFP, referring to the naira trading symbol NGN.

Local media reported that two company officials who flew to Nigeria to negotiate with the government were detained and their passports confiscated.

Nigerian officials have not confirmed those arrests, but lawmakers are also considering issuing arrest warrants against the company's top executives for "ignoring invitations."

Those arrests are likely to "negatively affect the country's reputation," said Seyi Awojulugbe, senior analyst at Lagos-based risk consultancy SBM Intelligence.

Binance denied any wrongdoing in a statement posted on its website last month.

Bayo Onanuga, media advisor to the Nigerian president, insists that Binance was sabotaging the country's economy by influencing exchange rates.

“That is why the government acted against Binance,” Onanuga told a local broadcaster in February.

“Some people sit around using cyberspace to dictate even our exchange rate, hijacking the role of the CBN (Central Bank of Nigeria).”

Onanuga did not respond to AFP's request for comment.

In the run-up to the February 2023 general elections, President Bola Tinubu promised a regulatory environment to encourage healthy adoption of digital assets, including cryptocurrencies.

At the time, a Central Bank of Nigeria order was in effect prohibiting banks from allowing crypto transactions.

President Tinubu promised before last year's elections a regulatory environment to encourage healthy adoption of digital assets, including cryptocurrencies.

Kola Solomon

The bank had ordered the closure of all accounts linked to cryptocurrency exchanges in 2021.

He feared that the anonymity around cryptocurrencies could allow money laundering, terrorist financing, and that high volatility could kill off investments.

Despite the ban, Nigerians' appetite for cryptocurrencies grew and many adopted peer-to-peer transactions, which allow people to exchange digital assets with each other.

Nigeria rose from 11th place in 2022 to second place a year later in a global cryptocurrency adoption index, according to Chainalysis, a global cryptocurrency analytics firm.

The CBN reversed its decision months after Tinubu was sworn in as president.

But weeks after the ban was lifted, a more intense crackdown on crypto exchanges began.

Experts said a more balanced regulatory approach was needed.

“The high adoption of cryptocurrencies in Nigeria underscores the need for clear regulatory reforms that strike a balance between safeguarding the interests of all stakeholders, maintaining financial stability and promoting innovation,” Arushi Goel, Head of Policy for the Middle East and Africa by Chainalysis. , he told AFP.

Despite projecting a modest 3.2 percent GDP growth for the economy in 2024, the International Monetary Fund warned that the weakening naira, inflation and tightening policies will pose headwinds for Nigeria's economy.

Experts said the current crackdown on cryptocurrencies will increase the pressure the economy is already facing and force millions of people using peer-to-peer mechanisms to trade digital assets.

“The crackdown will only deprive Nigeria of more foreign currency and plunge the Naira further into losses,” said Ray Youssef, CEO of NoOnes, a peer-to-peer cryptocurrency marketplace.

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