Nigeria is grappling with the repercussions of crypto’s overwhelming influence on its economy. The government has accused Binance of acting as a de facto central bank for the Nigerian currency and of tampering with its exchange rates. In response, the crypto exchange is withdrawing from the Nigerian market, potentially causing more disruption.
Binance, a major crypto exchange, is withdrawing from Nigeria following threats of a $10 billion lawsuit from the government.
This development is significant considering Nigeria’s total government revenue was only $42 billion in 2022. A $10 billion lawsuit would represent nearly a quarter of the country’s annual revenue.
The situation involves staggering sums of money: in February, the governor of Nigeria’s central bank, Olayemi Cardoso, claimed that $26 billion of untraceable funds flowed through Binance last year, which the government couldn’t identify adequately and deemed suspicious.
To put this in perspective, Nigeria’s total remittances from guest workers abroad, a crucial income source, amounted to just $24 billion. Crypto transactions already constitute twelve percent of Nigeria’s gross national product.
Crypto’s dominance has reached unprecedented levels in Nigeria. Even a single exchange like Binance, operating moderately in Nigeria, carries enough economic weight to sway the entire country. According to the Nigerian government and central bank, this imbalance has already occurred.
A Troubling Parallel with Zimbabwe
A spokesperson for the presidency, Bayo Onanuga, alleged that Binance manipulated the exchange rates of the Nigerian naira, which has been chronically unstable. In recent months, the naira’s value has plummeted by approximately 70 percent, raising fears of hyperinflation akin to Zimbabwe or Venezuela.
Previously, the central bank tied the naira’s exchange rate to official rates linked to the dollar. However, President Bola Tinubu, who assumed office last year, severed this tie in June. Subsequently, the naira’s value dropped sharply, stabilizing temporarily before depreciating further to its current level.
Despite speculations about the naira’s collapse being due to supply-demand dynamics, Onanuga refutes this, alleging that Binance’s actions caused the abrupt decline.
Crypto exchanges like Binance have emerged as crucial platforms for determining unofficial market rates for the naira. Though the official and unofficial rates once diverged significantly, they’ve nearly aligned since the liberalization of exchange rates, potentially cutting into traders’ profits from arbitrage.
Escalating Tensions
Tensions peaked in late February when the naira plummeted to 1,900 NGN for one dollar on Binance, approximately 20 percent lower than other rates. Binance temporarily suspended trading of the naira against Tether dollars on February 21st, citing significant price fluctuations.
Amid accusations of setting arbitrary exchange rates, Onanuga called for a ban on cryptocurrencies, warning of further currency devaluation and its dire consequences.
Following Binance’s trading suspension, the government swiftly ordered telecommunication companies to restrict access to three exchanges, including Binance, and summoned Binance employees for questioning. Onanuga floated the idea of suing Binance for $10 billion in damages.
Binance’s Departure
Facing increased scrutiny from the Nigerian Central Bank, Binance denied knowledge of the purported $10 billion lawsuit. Regardless, on March 5th, Binance announced the suspension of all services in Nigeria, urging users to withdraw or convert their naira holdings.
The delisting process, unusually swift even by crypto standards, aims to mitigate potential price manipulation. However, it also signals the closure of a gateway for converting the faltering naira into stable cryptocurrencies like Tether.
