Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN) recently admitted the value of the local currency had been adjusted to N410 due to scarcity in foreign exchange.
Coming from Emefiele who has spent most of his tenure as Governor of the CBN defending the naira against the widely preferred free float, it must have been an uneasy admission. It is the third time the apex bank is adjusting the value of the naira and may not be the last time the foreign exchange crisis continues.
“In order to adjust for the decrease in the supply of foreign exchange, the naira depreciated at the official window from N305/$ TO N360/$ and now hovers around N410/$,” Emefiele said.
Although oil prices are starting to rise again as demand surges buoyed by releases of vaccines against the COVID-19 pandemic, Nigeria faces age-long self-inflicted problems in the cost of landing fuel. Additionally, the COVID-19 pandemic has left sectors of the economy devastated, and investors are wary of the high insecurity in the country and hence not deployed as much capital as expected.
The monetary policies have also affected the confidence of Nigerians sending money home to their loved ones or investing in the economy using the local currency. International remittance which is a significant source of economic support for Africa’s most populous country suffered a 12.18 percent decline in 2020. From the $23.8 billion reported in 2019, diaspora remittances into Nigeria dropped by $2.9 billion to $20.9 billion last year, according to data by The Economist Intelligence Unit.
The World Bank also released a report in March showing that remittance inflow into the
the country fell 27 percent, year-on-year, (YoY) to $17.2 billion in 2020 from $23.55 billion.
This represents 18.2 percentage points below the 8.8 percent decline projected by the World Bank for both Nigeria and the Sub-Saharan African
Data from different operators show that most of that confidence is moving to the cryptocurrency market which is considered a cheaper, faster, and hassle-free alternative to sending money home through fiat currencies.
BuyCoins said it grew its actual trading users to 16,768 in 2020. This is 12x more than the 1400 actual trading users the company had in 2019.
“One of the biggest use cases of cryptocurrency is remittances and cross-border transfers,” Yele Bademosi, CEO of Bundle said at the Binance Blockchain Week in February.
A September 2020 report by Chainalysis found that currency severe currency devaluation which makes it difficult for people’s income to hold their value is driving attraction for crypto remittances.
“Cryptocurrency can act as a more stable value store for people living under these conditions. Anecdotally, we’ve heard several examples of this use case in Africa, and our data confirms that this is likely happening,’ report noted.
A significant portion of the remittances is also for business purposes according to the report. This point was also buttressed recently in a communique released by a group of tech ecosystem stakeholders in Nigeria under the aegis of Young Nigerian Technology Industry Leaders.
According to them, the total monthly bitcoin transactions (total trading volume) in Nigeria in 2020 were valued at N80 billion. This is more than the total monthly turnover on the Nigerian Stock Exchange in the second quarter of 2020. The transactions were mostly used for remittances by small businesses purchasing supplies from companies like China.
“Many Nigerians use these digital currencies to conduct transactions in and out of the country. For example, small businesses purchase supplies from China using bitcoin, which has become the most time- and cost-effective means to conduct cross-border transactions. Cryptocurrencies have made international trade possible for individuals who cannot access banks for foreign exchange, especially in rural areas,” the communique read.
Beyond buying supplies, the cost of remittance is also a big determinant for many businesses. The constant naira devaluation often means the cost of fiat remittance rises. According to research from the World Bank, remittances below $200 between two sub-Saharan African countries cost an average of 9 percent in fees, compared to the global average of 6.8 percent.
For many country pairs that see large remittance flows such as Nigeria to South Africa or Nigeria to Kenya, the fees can be as high as 15 percent. Also, there are multiple steps that are required for the money to get to its final destination.
But the digital and decentralised aspect of bitcoin Money Transfer Operators (MTOs) makes them incredibly easy to use, especially for those who have limited to no access to a bank account. For those people, they can send money online instantly, only requiring a stable internet connection.
Apart from ease of use, there are barely any middlemen, extra charges, and payment intermediaries that must be passed through to send money.
“Remittances and international payments are the primary uses of crypto in Nigeria and most of Africa. There has definitely been a surge in the use of crypto instead of traditional financial platforms given the ever-increasing restrictions by the Central Bank of Nigeria on money movements in and outside of our borders,’ Nathaniel Luz, Lead for Dash Nigeria said recently.
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