The Central Bank of Nigeria’s policy on cryptocurrency is clear.
On February 5, this year, the CBN posted a circular that stated, “dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.” Institutions were told to “identify persons and/or entities” transacting with cryptocurrency or operating crypto exchanges. The CBN clarified this statement to say trading in cryptocurrency is not banned but CBN wants to “prohibit transactions on cryptocurrencies in the banking sector.” In effect, a ban.
Nigerians responded to this directive from the CBN by simply moving to apps that allow Peer-to-Peer cryptocurrency transactions such as the cryptocurrency trading firm, Binance.
Binance has specifically targeted the Nigerian market in the wake of the CBN ban on cryptocurrencies by creating an NGN FIAT/NGN pair. This allows Nigerians to buy and sell Naira/USD by simply buying cryptocurrencies on the Binance platform and converting to Naira/USD.
I looked at the Naira to the USD exchange rate; it was N410 on the CBN website but N495 on the currency trading website, AbokiFX. According to CBN, if I receive 1$ via a Nigerian bank, I also get N5 addition, from the receiving bank, thus, the CBN is indirectly matching the AbokiFX rate to remove the disparity.
This N5 promotion policy still falls short. I can receive USD inflow from abroad, but if I wanted to import rice, I cannot approach my bank to buy 1$ at N412 which is the Importers-Exporters rate. Why? Because CBN has rice among the items that are banned from accessing the CBN FX system. Thus to import rice, I have to go to “AbokiFX” and get $1 at 495. This is how inflation is imported into Nigeria.
The CBN understands this, that why it tries to keep the Naira/USD exchange rate as low as possible so that the pass-through effect of a weak naira does not make local prices rise. The problem is this, if demand for USD exceeds supply, the exchange rate of the Naira with the Dollar will favour the Dollar and see the Naira weakening. The solution to a “strong” Naira is not to artificially reduce the demand for CBN dollars but to increase the inflow of USD to Nigeria.