By Adolphus Aletor
Just a while ago, the federal government of Nigeria, through the Central Bank of Nigeria, announced that it would be introducing a local or call it homegrown, cryptocurrency. This digital currency will be called e-Naira. Many people have applauded the government for taking this step, especially when other countries like India, China, South Africa, Ghana, and others, have also decided on a homegrown digital currency. Nigeria should not “carry last”, as we say in our local parlance.
However, while some people have questioned the rationale for such introduction and the value to the economy, others have simply concluded that it is a project that will fill the void of inaction, giving the government a sense of psychological satisfaction. This is against the background that while the government banned cryptocurrency activities on the one hand through the CBN, it has decided to create a replacement following the directive or advice of Vice President Yemi Osinbanjo. What really, does the government want to achieve?
The existence of cryptocurrency, especially Bitcoin, was widely accepted among the youths and upwardly mobile adults or progressives, as they may want to be called. Only the conservatives stuck to the status quo and vowed never to be involved in what they cannot explain. So, even when some had issues with it as a form of investment channel, it thrived and grew across the whole country.
Recall that before October 2020, Cryptocurrency trading had become rife and pervasive. It became the first choice investment channel for mostly the youths (and few adults too). The United States of America was the only country ranked ahead of Nigeria in Cryptocurrency trading. It was also a fact that the indices show a close mark between both countries and after them was a wide gap before the third. Why was this so? Our population is youthful; we have a bubbling tech ecosystem; an unstable currency and a high remittance activity. To translate this to figures, while the US did about $3.7 billion, Nigeria followed with $566 million. The third was China at $181 million. At this rate, we still did not have any problem with it as a government. Even top government officials, finance experts and notable businessmen were rumoured to have taken a significant position in cryptocurrency. The industry boomed and the people prospered.
Boom! Boom!! Boom!!! Came the sound in October 2020. The youths squared against the government through the protest tagged #EndSars. Despite all the attempts made by the government to stop the illicit flow of financial support for the protest that lasted almost three weeks, resources and energy flowed unabated. The government had assumed that once they were able to stop the flow of funds, the organisers would be left stranded and the protest would die a natural death. It is a classical military strategy that has worked for ages. But this time it failed! Why? The government realised that the organisers had gone underground. They went virtual, using cryptocurrency to promote their cause. Upon this discovery, it was imminent that the government would move against the use of cryptocurrency, but it was just a matter of when.
Feliz navidad, Felix navidad…! Then came Christmas. In an economy where many in the diaspora are loyal to their families, remittance became significant and a useful tool for the government to control the exchange rate. It also provided foreign exchange for the government. In the past, diaspora remittances had grown steadily but suddenly it lost 27 percent from $17.6 billion in September 2019 to $12.9 billion in September 2020. This was the same period when crypto trading in Nigeria had reached an all-time high of $309.6 million within the year 2020. For a government that prides itself as responsive and catering to the welfare of the citizenry, the urge to take decisive action became stronger and there you go, on February 5, 2021, the government announced a ban on the trading of cryptocurrencies and forbade any financial institutions to operate their account. So, in an attempt to survive, all cryptocurrency operations then went black!
After the ban, the pressure was mounted on the government, through the CBN, to be innovative as virtual currency has become the future. This continued for some time until the vice president advised the CBN to rather think of regulating the market than ban operations. In response to the pressure and the voice of reasoning, CBN has announced the floating of a virtual currency called e-Naira. The federal government assumes that e-Naira will replace crypto in Nigeria and has continued to assure Nigerians of the great opportunities the idea will bring. This government assumption is the crux and motivation for this article.
One, I believe that the government needs to come clean and embrace reality with regards to comparing e-Naira to a cryptocurrency like Bitcoin, for instance. Both are not the same and do not meet the same need. I have read many comments from people on this issue giving the reason why it is not the same. Those technical reasons are not what I am concerned with. I am just concerned with the everyday reasons on the street, why they are both not the same and why people will not accept them as the same. Have you noticed that our people prefer Ponzi schemes to conventional regulated financial houses?
It was reported recently that Nigerians lost about $50 million to MMM during its reign; and from a total of over one hundred and twenty-five thousand investors, a certain forex trading outfit with branches across Nigeria went down with over N171 billion of investors’ money. One major attraction to crypto in Nigeria was the fact that it was not regulated. Our people’s orientation is informal and unstructured and we all thrive within this space. This has also accounted for the reason why the Nigerian economy, despite all the shocks, has not been reduced to the level of other countries that suffered the same fate.
The Nigerian economy is significantly unstructured and informal so anything that requires structure, regulation and order may become unpopular with the people. Another major attraction of Nigerians to crypto is the adrenalin rush which bothers on the high risk associated with it. Many Nigerians like to sow and reap quickly. They despise the farmers’s attribute of patience when it comes to investment. If the e-Naira lacks these two attributes, it is less likely to succeed.
Two, the federal government should not forget its relationship with the larger populace and the reason(s) behind the ban of crypto. Many Nigerians believe that the government has continued to devise ways to monitor the financial activities of the population and that the floatation of e-Naira does not come with true intentions. This lack of trust between the government and the populace is an issue that sabotages the idea.
Some people have had their accounts frozen for their involvement with the protest against government activities and they had to move their investment to crypto to evade government watch. The attribute of centralisation and monitoring creates a sharp difference between e-naira and crypto and may be a bane to the success of e-Naira.
Three, as a regulator, the CBN has in its guidelines for financial institutions, the permissible and non-permissible business that the licensed institutions must or must not engage in. One of the businesses that must not be done by financial institutions is any business that is speculative in nature. A true Crypto is speculative and does not have a static value. The question many are asking is: Is the CBN going to superintend over a speculative business? What would they do should e-Naira lose value? Will they still have the confidence of the public?
The role of the CBN as Bankers of last resort does not only mean bankers to the Bankers but Bankers to the common man. The confidence that no bank will elope with any depositor’s money has made the common man continually put their trust in the CBN. Is the CBN ready to allow this confidence to vanish should the common man lose value on e-Naira?
On the part of the proponents, I have read that e-Naira would make life easy for owners and have no element of risk. Yes! I agree that this should be the case. The CBN should be involved in what will not cause sleepless nights for owners. Many claim that the e-Naira is a mere means of payment; a cash alternative devoid of any trappings of crypto. Individuals can hold wallets with the CBN. But of importance to the populace is what becomes of the balance in the wallet? Is it going to be subjected to the forces of demand and supply to modulate the value or be available for transactional purposes?
Many people have become rich through the speculative and volatile nature of cryptocurrencies. Some people claim to have invested one hundred dollars and today have balances over three hundred thousand dollars within the last few years. The e-naira does not have this attribute. I urge the federal government to use local realities to solve local problems. But for the reasons above, the idea of a digital currency is brilliant and welcome. While we applaud and emulate other countries for doing the same, the peculiarities of our system should drive us to a more innovative alternative.
The government should not downplay the issue of trust. It is going to be the key survival indicator for the e-Naira. If the government must get involved in crypto, I suggest they create a different industry that will accommodate all the razzmatazz, adrenalin rush, and separate it from the conventional banking activities.
Adolphus Aletor, FCA, MCIB, a banker and finance analyst, is the managing director/CEO, Rigo Microfinance Bank; he can be reached on +2348033410380 (WhatsApp only) or email@example.com