What's Behind the Declining Value of Nigeria's Currency?

Update: This story has been updated with the most recent information as of March 7 at 8:30 p.m. GMT.

Nigeria’s Finance Minister, Wale Edun, has stated that 8 years of rampant, unchecked money print is responsible for the inflation crisis rocking the country. Speaking during an interface with the Senate committee on finance, Edun stated that the Central Bank of Nigeria (CBN) printing of ₦22.7 trillion ($14.4 billion) for the previous administration, led by former president Muhammadu Buhari, was “not matched by productivity,” adding that the “privileged few took everything.”

Nigeria is dealing with its worst inflation rates in decades, compounded by the sliding value of its local currency, the naira (NGN), to the dollar. While Edun has stated his ministry’s commitment to auditing the excessively printed money, which many had already stated was a big reason for the country’s economic woes, initial reactions from the government focused on “speculators'' who were driving the value of the Dollar up against the Naira, including the global leader in cryptocurrency exchange, Binance.

From Friday, March 8, the global leader in cryptocurrency exchange, Binance, will no longer support trades and services related to the naira. In a statement shared on the Binance app earlier today, “users are encouraged to withdraw NGN, trade their NGN assets or convert NGN into crypto,” before the discontinuation date. All remaining NGN balances will be converted to USDT at a stipulated rate.

This move is happening amidst the Nigerian government’s apparent witch hunt of Binance over the last few weeks, with news reports about the Office of the Nigerian Security Advisor (ONSA) arresting two executives of the crypto exchange, after Nigeria’s Central Bank (CBN) accused Binance of benefiting from illegal transactions.

Nigeria’s House of Representatives committee on financial crimes stated its readiness to recommend an issued warrant for the arrest of top-level Binance executives, in order to respond to allegations of money laundering, tax evasion and financing of terrorism. In December, the committee had written a letter requesting the presence of Richard Teng, Chief Executive of Binance Holding Limited, after receiving a petition from a coalition of civil groups who demanded that the crypto exchange’s operations in Nigeria be looked into, along with the aforementioned charges.

Teng did not appear before the committee and Binance’s legal representatives in Nigeria have been shunned by the reps, capped off by last week’s address.

The events of the last week continue to play into the Nigerian government’s tumultuous relationship with cryptocurrency. In February 2021, the CBN banned all crypto transactions, citing money laundering and terrorism financing as its primary reasons. For many observers, the ban was a reaction to the October 2020 End SARS protests, where crypto donations proved to be invaluable, as CBN and the government tried to restrict pipelines for crowdfunded monetary donations.

Last December, CBN, under a new government administration and a new governor, Olayemi Cardoso, officially lifted the crypto ban. Now, amidst an economic crisis, Binance is being pointed at as one of the perpetrators of the rising exchange rate between the naira and the dollar.

Since the beginning of the year, the value of Nigeria’s local currency has taken a massive hit. Currently, $1 is equivalent to about N1,500, a 25 percent slide from rates in December. At some point a few weeks ago, $1 traded for up to N1,900 on the black market.

According to experts, the volatile price of crude oil, Nigeria’s main export, as well as the ratio tilting heavily in favor of imports over exports are primary causes of the exchange rate slide. There’s also the matter of shrinking foreign direct investment, which means the little infusion of dollar investment in Nigeria’s ailing economy continues to drive up the demand for limited dollars left in the country. In addition to that, a few multinational companies like pharmaceutical giant, GlaxoSmithKline, have exited Nigeria, citing economic constraints and difficulty in settling “foreign currency-denominated trade payables with product suppliers.”

Along with the removal of petrol subsidies, food insecurity issues and generationally horrible inflation figures, the foreign exchange issue has worsened the standard of living for many Nigerians. With so many goods being imported, high exchange rates have helped to drive the prices of food items and household goods even higher than they already were.

Nigeria’s foreign exchange woes date back to the tenure of former CBN governor, Godwin Emefiele, who officially pegged the naira-dollar exchange rate, despite the currencies trading at a much different, higher rate for the naira on the black market. During that period, it is alleged that the rampant printing of the naira devalued the currency, and that many government officials used these printed notes to buy up foreign currency, worsening the scarcity of the dollar.

Last year, Cardoso implemented a free float, allowing the market to dictate the exchange rate. However, he’s now opted for stringent regulations, including a controlled peg of the official exchange rate, in a bid to stem the slide and volatility of the naira against the dollar. Cardoso also blamed “distortions” effected by speculators, claiming people like those who trade on Binance are worsening the naira’s standing against the dollar.

“Artificial stability is unsustainable and such attempts will likely worsen the naira's problems in the long run,” Samuel Akpan, an Independent Crypto Expert specializing in Blue-Chip Crypto projects, tells OkayAfrica. “These restrictions drive activity underground, increase corruption, and diminish trust in Nigeria's economic system.”

Akpan says recent events like the float and the antagonizing stance with Binance continue the actions of former CBN governor Emefiele, whose principles played a role in worsening the naira’s value over the years. “These tactics demonstrate a misunderstanding of fundamental economic principles and a history of repeating failed policies,” Akpan says, adding that scapegoating Binance does nothing to address the real reasons for the naira’s instability.

With investor confidence not exactly on the high side, the new over-regulation police and the arrest of Binance executives aren't particularly helping the case for Nigeria as a suitable ground for foreign investment. Contrast that to Kenya, where the shilling has recently gained against the dollar and inflation rates have reduced, following the positive effects of a $1.5 billion Eurobond issuance. Taking proactive steps to lessen the country’s debt and attract more foreign investors, the effects are already boosting consumer spending.

In addition to easing restrictions that stifle businesses and innovation, Akpan believes there are possible measures to tackle systemic issues that factor into the naira-dollar exchange rate. “Limit the government’s ability to print excessive naira,” Akpan recommends. “Diversify the economy and build a strong export sector to reduce reliance on oil, and [add tackling inflation] within the CBN’s targets.”