The Nigerian government’s refusal to take responsibility for the failing naira has led them to blame Binance and detain two of its employees. However, it’s time for the government to acknowledge its own mismanagement of the currency and embrace currency competition.
The naira has been depreciating for years, but tensions reached a boiling point in February when Bayo Onanuga, President Bola Tinubu’s adviser, accused Nigerians of being unpatriotic for trading naira for cryptocurrency. He called for a ban on crypto, claiming it was causing the devaluation of the currency.
Subsequently, authorities accused Binance of illegally moving $26 billion out of the country and requested a meeting with their employees. Two Binance staffers, Tigran Gambaryan and Nadeem Anjarwalla, were then placed under house arrest. Although Anjarwalla managed to escape, Gambaryan, an American citizen and former IRS agent, remains in custody. Both individuals now face charges including tax evasion, money laundering, and providing financial services without a license.
Unfortunately, this behavior is not uncommon among government officials worldwide. Instead of creating a stable currency that people willingly use, governments often impose restrictions that force people to rely on unstable currencies.
As Nobel laureate F.A. Hayek explained in 1976, currency competition is essential to ensure the reliability and usefulness of money. It’s no wonder that Nigerians have turned to cryptocurrencies, particularly stablecoins, to gain exposure to the US dollar. The Nigerian government failed to provide a reliable store of value, leading the public to seek better alternatives.
By imposing restrictions on these alternatives, the government is compounding its mistakes. It fails to recognize that the use of cryptocurrency is a symptom, not the cause, of the naira’s decline. The government is essentially punishing its own citizens by trapping them in a sinking ship.
Furthermore, the government’s actions over the past few years have negatively impacted Nigeria’s international reputation. With its constant flip-flopping on cryptocurrency regulations, detainment of foreign citizens, and consideration of another ban, it’s likely that many companies are becoming hesitant to do business in the country. This lack of investment will ultimately harm Nigerian citizens.
The Nigerian government desperately needs the discipline and competition that the market can provide. Taking accountability for mismanaging the naira starts with allowing the market to determine the exchange rate. The government’s inconsistent price controls have only made matters worse. If the government hadn’t interfered with exchange rates, Binance wouldn’t have been wrongly blamed for the naira’s crash.
Additionally, the government should abandon its central bank digital currency (CBDC) and focus on stabilizing the naira. The resources and efforts dedicated to the CBDC could be better utilized in addressing the currency’s problems. The adoption of the CBDC only reached 1 percent due to a government-induced cash shortage.
As Hayek noted in 1976, interesting questions arise when one challenges the notion that a country must rely solely on its government-issued currency. Nigerian citizens have already recognized the benefits of cryptocurrency, and now it’s up to the government to follow suit.
The government can continue its mismanagement of the currency or embrace competition and strive to create a currency that every citizen would willingly use. It’s time for the Nigerian government to take responsibility and work towards a better financial future for its people.