The Nigerian government is quick to point fingers at others for the failure of the naira, but it’s time for them to take responsibility for their own actions. Instead of blaming external factors, they should acknowledge their years of mismanagement when it comes to the country’s currency. In fact, it’s time for them to embrace currency competition.
The decline of the naira has been a long-standing issue, but tensions escalated earlier this year after a significant crash. Bayo Onanuga, an adviser to President Bola Tinubu, went as far as accusing Nigerian citizens of being unpatriotic for trading their naira for cryptocurrency. He even called for a ban on crypto in the country, claiming that it was the cause of the currency’s decline.
In response to these accusations, the government targeted Binance, alleging that the company had illegally moved $26 billion out of the country. Binance was then asked to send employees to discuss the matter, but instead of engaging in a constructive dialogue, the government placed two of Binance’s staffers, Tigran Gambaryan and Nadeem Anjarwalla, under house arrest. While Anjarwalla managed to escape, Gambaryan, who is an American citizen and former IRS agent, remains in the country. Both individuals now face serious charges, including tax evasion, money laundering, and providing financial services without a license.
Unfortunately, this behavior from Nigerian officials is not uncommon. Rather than creating a strong and reliable currency that people would willingly use, governments often resort to imposing restrictions that limit people’s choices and trap them with a weak currency.
As Nobel laureate F.A. Hayek explained in 1976, currency competition serves the purpose of holding monetary and financial institutions accountable. It prevents any one entity from issuing a currency that is less reliable and useful than others. It is no wonder then that Nigerian citizens have sought out cryptocurrencies, especially stablecoins, to gain exposure to the US dollar. The Nigerian government has failed to provide a trustworthy store of value, and the public has sought better alternatives.
By imposing restrictions on these alternatives, the Nigerian government is compounding its mistakes. It fails to recognize that cryptocurrency use is a symptom, not the cause, of the naira’s decline. Instead of punishing its own citizens and trapping them with a failing currency, the government should acknowledge its errors and seek to rectify them.
The situation does not look promising from an international perspective either. The Nigerian government’s actions over the past few years, including creating a central bank digital currency, causing a cash shortage, banning and then lifting the ban on cryptocurrency, blocking access to exchanges, and detaining foreign citizens, indicate a lack of consistency and stability. This will likely deter companies from doing business in Nigeria, ultimately harming the country’s citizens.
The Nigerian government desperately needs the discipline that competition can provide. Taking accountability for currency mismanagement starts with allowing the market to determine the exchange rate for the naira. The government’s inconsistent price controls have only worsened the situation. If the government had not intervened in exchange rates so heavily, it is unlikely that Binance would have been blamed for the naira’s crash, especially since part of the accusation was that Binance manipulated the rates.
Furthermore, the Nigerian government should abandon its central bank digital currency plans. Instead of investing time and resources into this project, which has shown little progress, they should focus on improving the naira itself. It is clear that the government’s efforts to promote the CBDC have not been fruitful, as its adoption remains minimal.
In 1976, Hayek wrote about the interesting questions that arise when one questions the notion that a country must rely solely on its government-issued currency. Nigerian citizens have already recognized the benefits of cryptocurrencies, and now it is up to the government to follow suit.
The government can continue down the path of currency mismanagement or embrace competition and strive to create a currency that every citizen would want to use. The choice is theirs.