Nigeria, Africa’s most populous nation and largest economy, is currently facing a financial crisis that has underscored the importance of cryptocurrencies for its population of over 219 million.
Despite the government’s launch of a central bank digital currency (CBDC), the eNaira, citizens have shown little interest and have instead turned to mainstream crypto assets, despite a ban on their use.
The central bank’s new policy and its effects
Last October, the Central Bank of Nigeria (CBN), the country’s apex bank, declared the redesign of the most widely circulated denominations of the naira, specifically the 200, 500, and 1,000 cash notes. The CBN urged the public to deposit their old notes at the various banks throughout the country before Jan. 31, after which they would no longer be considered legal tender.
Despite the deadline being extended to Feb. 10, the shortage of new naira notes has led to a financial crisis in the country. This is because the central bank reportedly released only 500 billion naira into circulation, as opposed to the required 3 trillion naira. Consequently, most banks were still dispensing the old notes to their customers in the few days leading up to the deadline, according to the local outlet, The Cable.
Pandemonium erupted, with businesses rejecting the old notes to avoid having them in possession when they are eventually declared invalid. Amid the ensuing financial crisis, a group of several state stakeholders dragged the Federal Government and the CBN to the country’s Supreme Court, seeking an extension of the deadline.
Following a hearing on the matter, the Supreme Court ordered that the deadline be suspended and the old notes allowed to remain as legal tender. Nonetheless, the Federal Government has not obeyed the order, mandating the CBN to keep to its deadline.
As the deadline inched closer, banks were later prohibited from swapping banknotes. Furthermore, owing to the scarcity of the new notes, the CBN directed Nigerians to head to its branches across the country and deposit their old cash to their bank accounts without receiving the new notes, leaving them with no hard money and presenting digital payments as the only option available.
With the deadline approaching, the old notes are no longer considered legal tender, as banks and businesses are now rejecting them, several people familiar with the matter told crypto.news. The Federal Government only ordered the CBN to reissue and recirculate the old 200 naira notes until April 10. The government insists that the recent policy is aimed at rendering stored-up cash by bandits and kidnappers useless, imploring Nigerians to bear with the situation, according to the sources.
The limitations of fiat payment systems and the prevailing crisis
The release of a limited amount of new notes has led to a disturbing scarcity and a subsequent cash crunch which Victor Ibrahim, growth marketer at Devi AI, ascribed to efforts at forcing the populace to switch to a digital payments system.
“Nigeria as a nation is trying to shy away from fiat and move more into the digital economy. This can be seen in the recent cash hoard, which is mandating people to use digital platforms like mobile transfer, USSD, and POS.”
Victor Ibrahim said exclusively to crypto.news.
He added that the country’s eNaira, which retains the same value as the fiat naira, was part of the earliest efforts geared towards this push to a more digital payments system. However, the eNaira has not enjoyed as much adoption as the government envisioned due to its centralized control, Ibrahim claimed.
As a means to enforce the cashless policy, recall that the central bank restricted cash withdrawal to a weekly limit of 100,000 naira (around $270) for individuals and 500,000 naira for corporate organizations. However, following a series of complaints from stakeholders, these withdrawal limits were revised to 500,000 naira for individuals and 5,000,000 (a little over $1,000) for corporate organizations, but this revision has also been met with sharp criticism.
Amid this enforcement and the prevailing cash crunch, the country’s national fiat transfer system, the NIBSS, has struggled to cope with the increase in digital transactions, resulting in numerous failed transactions. Additionally, the shift towards digital payments has put a strain on mobile banking apps, with several of them crashing repeatedly, people familiar with the matter stated.
Most banks domiciled in the country have received numerous complaints from their customers regarding failed transactions, as the system experienced unprecedented congestion. As the crisis heated up, some citizens have resorted to destroying banking facilities in an effort to voice out their frustration – a move that the authorities have readily condemned.
According to a report from a local paper, Punch Newspapers, numerous protesters attempted to break into the CBN office in Benin City, Edo state, on Feb. 15. In a video shared, security officers were seen firing shots in an attempt to disperse the protesters who were bent on vandalizing the bank’s facilities. Two protesters were reported to have been killed.
Numerous demonstrators took to the streets across several states in the country. Specifically, Union Bank, First Bank and Keystone Bank saw their branches in the Ogun state set ablaze by rioters who bemoaned the rejection of the old banknotes despite the state governor’s assurance that the old notes will still be accepted.
Against the backdrop of the ongoing crisis, the Nigerian crypto community has stressed the need to incorporate cryptocurrencies into the country’s financial system. Oluwasegun Kosemani, the founder of the BTC transfer system Botmecash, recently highlighted this need.
Kosemani called attention to the prevailing situation regarding cash withdrawals in the country amid the crisis, where citizens are forced to pay a substantial amount of fees for withdrawals from independent roadside bank agents, as banks have closed most of their official branches. Some agents collect as much as 30% to 35% on withdrawal fees.
Speaking on the situation, crypto podcaster Mary Imaseun noted that the crisis could have been ameliorated if Nigerians could pay for goods and services using cryptocurrencies.
“Someone told me yesterday that to withdraw N20,000, they had to pay N3,000. Money is being sold for money right now. This is the best time to use bitcoin in Nigeria,” she said. “If vendors were open to accepting bitcoin payments, then we wouldn’t have to deal with the craziness happening in the country right now. I’ve seen videos of people in banking halls stripping to get heard, people angry that they can’t get money from their own accounts.”
Moreover, the program director at Qala Africa, Femi Longe, believes that the eNaira did not pave the way for the current currency crisis. “It’s just a bit-part player in a bigger drama that is not of its making. The CBN’s cashless policy long predates the creation of the eNaira and way more volume of money moves in the Nigerian economy digitally outside the eNaira.”
Longe added that the current crisis in the country is “created by a mixture of FOREX shortages which have gone for a few years now caused by dwindling oil revenues, corruption, alternative means of value transfer including Bitcoin and terrible central bank policies.”
“A desire to bring back into the banking system tons of paper currency stolen and stashed away by government officials and politicians; an interest in reducing the amount of paper currency available for vote buying during the presidential elections on Saturday and frankly, just terrible implementation of what should have been a routine currency swap exercise.”
Femi Longe on the possible reasons for the cash crisis in Nigeria.
Speaking with crypto.news, Longe added that the eNaira is not “responsible for any of these.”
“It is just a boneheaded program that the CBN fast-tracked in the hope that it would help them get a foothold in digital payments.”
Femi Longe concluded.
On the other hand, the CEO of Paxful, Ray Youssef, further commented on the crisis and the opportunity it presents, noting his desire for bitcoin while pointing out El Salvador’s situation.
Nigerians shun eNaira, resort to P2P amid crypto ban
Despite the financial crisis, the adoption of the eNaira has been sluggish, according to a report from The Punch, a local media outlet. The study, citing a recent IMF account, revealed that as of Nov. 2022, the total downloads of the eNaira wallet stood at a paltry 942,000.
In addition, the majority of the wallets that were downloaded have been inactive, as only 8% of them are actively in use. The average transaction amount for these wallets is 53,000 naira (~$120). Regardless of the initial hype surrounding the launch of the eNaira in Oct. 2021, the CBDC has been largely ignored by Nigerians, who have instead directed their attention to mainstream cryptocurrencies.
According to a survey conducted by Morning Consult last year, a significant proportion of 63.8 million adult Nigerians, equivalent to 56% of the country’s total adult population, engage in regular cryptocurrency trading. This figure surpasses that of any other country. In contrast, the United States reaches roughly 43.4 million individuals, representing only 16% of the adult population.
In addition, current data indicates that Nigeria was ranked as the country with the highest level of interest in cryptocurrencies globally last year. Specifically, it secured the top position in terms of “how to buy bitcoin” searches in 2022.
In the aftermath of the prohibition of cryptocurrency trading in Nigeria in February 2021, citizens of the country began utilizing peer-to-peer (P2P) transactions. As a matter of fact, a significant proportion of the P2P trades conducted on Paxful were executed by Nigerians.
The ban has done little to hamper the growth of cryptocurrencies in the country, people familiar with the matter said. Rather, it has resulted in black market setups where digital assets are sold at a premium, particularly due to the irregular exchange rate of the naira. At its current price of $24,700, BTC is trading at 18.5 million naira based on the black market rate of 750 naira per dollar. However, 18.5 million naira is the equivalent of $41,100 based on the official rate of 450 naira per dollar.
Last December, Babangida Ibrahim, the chairman of the house of reps committee on capital markets and institutions, disclosed that the House of Representatives intends to pass a law that will permit and regulate the use of cryptocurrencies in the country. There hasn’t been any useful update on the process since then, but the current situation has underscored the need to expedite it.
The CBN did not respond to a request for comment on the matter.