A regular riposte to the ideas expressed in this column is that they merely expose problems or provide commentaries, as against “provide solutions.” Putting aside the irony of responding to an alleged catalogue of complaints with what amounts to yet another complaint in itself, the sentiment does have some value.
The mind that can pick through problems and analyse them to their underpants should also be able to throw out ideas and solutions. There’s just one problem with that, and the problem is a single word – Nigeria. Over the past year in this column, several attempts at providing solutions and suggestions have been made, all to the grand effect of approximately nil.
In this column, there has been a proposed infrastructure investment plan that will superheat the economy instead of waste money on doomed railways to Maradi and Maiduguri. There has been a series of policy suggestions to ease trade and make commerce less attritional. There have been suggestions for alternatives to the retinue of border closures, capital controls, uniform lockdowns and import restrictions that have put Nigeria on the brink of its worst recession since the civil war.
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At this point, the only suggested solution yours truly has left is one that might deliver Nigerians from the mouth of the monster that is statistically more likely to eat them than any other – the Nigerian government. As a relative veteran of the cryptocurrency space who has seen it move from a fringe cypherpunk movement into a bona fide global multibillion dollar behemoth, I have often asked myself if this free and unregulated asset class could represent freedom for Nigeria’s squeezed middle classes from their openly parasitic, extractive, unproductive and adversarial government. I do not have a definite answer, but what I do have is some food for thought that might hopefully have some financially nutritional value for someone reading this.
If the government continues to avoid doing the commonsense thing and floating the naira, leading to investor confidence and increased forex inflows, choosing instead to nonsensically ration its way to zero, the citizens who were not consulted or listened to at least deserve an escape pod
First the boring stuff
What is cryptocurrency? To cut an unnecessarily long and technical story short, it is basically a decentralised open-market electronic medium of exchange, which means that its value rests entirely on its demand versus its supply, and there is no central institution like a bank or regulator that controls it. The biggest attraction of cryptocurrency is also what some consider to be its biggest downfall – there is literally nobody in charge. This means that there is no Godwin Emefiele to slam a “Post No Debit” on your account whenever he wakes up on the wrong side of the bed, but this also means that there is no Godwin Emefiele to ensure that you get your money back if the exchange platform collapses or you accidentally send it to the wrong account.
In such a scenario, it’s pretty much just you and whichever deity you believe in.
Cryptocurrency is as easy and exhilarating to use as it is easy to lose if you do not treat it like real-life money and do your due diligence before engaging with it in any way. What makes it uniquely attractive to a growing number of Nigerians is the fact that it is completely outside any kind of effective control of the CBN, which places it beyond the CBN’s onerous capital control policies like the current forex restriction. Over the past 12 months, many Nigerians have rapidly discovered how to carry out international trade and pay foreign tuition fees using cryptocurrency, sidestepping Emefiele’s small library of circulars and memos issued over that period.
The next time you replace one of your car’s worn out parts or buy a pack of juice at the supermarket or shop for some new clothes at the mall, there is a very big probability that those goods were imported in whole or in part via a crypto transaction. Whereas previously the Nigerian government had the sole power to decide who, what and how much trades at what time, cryptocurrency has created a distinctly multipolar financial order and given Nigerians the welcome ability to thumb their nose at a government that clearly does not have their interests in mind.
To be clear, I am not suggesting that the solution to bad monetary policy in a poor, under-productive country like Nigeria is to dump our national currency enmasse and pile into crypto, effectively nuking the naira a la Venezuela. What I am saying is that Nigerians no longer have to be victims of adversarial, selfish and politically-influenced economic decisions like forex restrictions. If the government continues to avoid doing the commonsense thing and floating the naira, leading to investor confidence and increased forex inflows, choosing instead to nonsensically ration its way to zero, the citizens who were not consulted or listened to at least deserve an escape pod.
A word of caution
Despite the decentralisation and lack of CBN control, it is still important to note that it is still possible to restrict if not quite throttle cryptocurrency usage in Nigeria. Currently, there is a confusing regulatory schizophrenia on the subject, with conflicting information coming from different banks concurrently, and no kind of definitive statement from the CBN. Some cryptocurrency exchanges have bank accounts, which seems to indicate a measure of CBN approval. Other banks regularly restrict and block accounts linked to cryptocurrency usage, claiming that these actions are CBN-sanctioned.
Just as importantly, it is also key to understand that the state of the naira does indirectly control the financial status of all Nigerian residents whether they use crypto or not. With the sole exception of so-called “crypto maximalists” – people who hold their entire liquid net worth in crypto and even carry out regular transactions with it instead of fiat currency – pretty much everyone uses naira linked to Nigerian bank accounts under the CBN’s jurisdiction. Some crypto exchanges currently offer the ability to purchase crypto with naira by paying the equivalent naira sum into a CBN-regulated bank account – this means that the Nigerian state if it wants can still crack down on a large amount of regular crypto commerce in the country.
Ultimately, if the goal is to extricate oneself completely from the suffocating grasp of Emefiele’s Soviet-style central planning policies via cryptocurrency while still living here, there can be no half measures. It will mean ditching all but a small percentage of naira holdings used to deal with daily expenses and moving one’s net liquid holdings into cryptocurrency. In such a scenario, dollar-pegged stablecoins provide the ideal hedge for both CBN policy somersaults and crypto’s legendary volatility. Whether a significant number of people reading this will be brave enough to do that is another matter altogether.
It might be worth keeping in mind the following exchange that I had recently with one of Nigeria’s so-called “bitcoin maximalists.”
DAVID: I’m amazed that you feel confident holding your life savings in bitcoin. What if the price crashes? Why not a stablecoin at least?
MAXIMALIST: “If you had N10 million in 2014, you have about N3 million now even if your account says N10 million. Bitcoin has never lost value over years like that.”
DAVID: Yes but I can’t imagine holding it as a store of value though. I’ve seen it shed 10 percent in 4 minutes before.
MAXIMALIST: “Still holds value better than the naira though.”
