In Nigeria you can see what happens when crypto becomes too big for an economy. The government accuses Binance of playing the role of the central bank for the naira and of manipulating the rate of the Nigerian currency. The stock market then withdraws from the country – but this could cause further turbulence.

Crypto exchange Binance is pulling out of Nigeria after the government threatened to sue it for $10 billion.

To understand the magnitude of this news, one should know that Nigeria had government revenue of just $42 billion in 2022. If the country were to sue Binance for $10 billion, that would be almost a quarter of government revenue.

The affair also involves enormous amounts of money: at the end of February, the governor of the Nigerian central bank, Olayemi Cardoso, declared that $26 billion of “untraceable” money flows had flowed through the Binance exchange last year, which the government could not “adequately identify”. and who are “suspicious at best”.

For comparison: the total remittance – the income from guest workers abroad that flows back to Nigeria, an important source of income for the country – was only $24 billion. According to statistics, crypto transactions already account for twelve percent of Nigeria’s gross national product.

In Nigeria, chef and waiter have switched roles. Crypto is bigger than the country, and even a single exchange that only operates a moderately important marketplace in Nigeria has an economic weight that can drag the entire country with it. And according to the country’s government and central bank, this is exactly what happened.

A second Zimbabwe?

A presidential spokesman, Bayo Onanuga, told the BBC that Binance was manipulating the exchange rates of the Nigerian naira. The naira is chronically unstable, but has suffered particularly in recent months, when it depreciated by around 70 percent. If you follow the chart, this is where hyperinflation begins to appear; Nigeria could become an African Venezuela, or a second Zimbabwe.

The central bank had previously tied the exchange rate to official rates, which depend on the dollar. However, President Bola Tinubu, who took over the government last year, abandoned this tie in June. The naira fell almost immediately from 0.22 to 0.13 dollar cents, but stabilized at this level by the end of the year. At the end of January, however, it depreciated again to now stand at around 0.062 dollar cents.

One might think that the collapse of the Naira is due to its exchange rate being exposed to supply and demand. Given the country’s rising debt and constant foreign exchange shortages, this wouldn’t be too unlikely. However, Onanuga denies this: “The price of the naira collapsed out of the blue,” he told the BBC, “and this was caused by actors on the Binance platform.”

Crypto exchanges such as Binance have become important platforms in Nigeria over the past few years for determining the unofficial market rates for the naira. As a rule, this unofficial exchange rate deviated far from the one set by the central bank; However, since the liberalization of the courses, they have been almost identical.

This probably lost a source of income for traders and market makers who had previously made good money arbitraging official and unofficial prices. They may have used Binance’s position to manipulate the Naira exchange rate and thereby generate new revenue.

The situation is becoming more critical

The situation came to a head at the end of February. The naira fell to a low of 1,900 NGN for one dollar on Binance – around 0.05 dollar cents and around 20 percent below other rates – whereupon the platform briefly suspended trading of naira against Tether dollars on February 21st and limited.

Binance is a marketplace, the exchange wrote on February 21, “and not a platform for price discovery.” To protect users, the system automatically pauses if there are strong price fluctuations. This happened last night. Some adjustments have now been made, such as the automatic removal of abnormal prices, and trading has started again.

Onanuga, on the other hand, accuses Binance of arbitrarily setting the exchange rates for the Naira and thus taking on the role of the central bank. “Cryptocurrencies should be banned in our country,” he demanded, “otherwise our currency will continue to bleed out.” The situation is actually dramatic: the International Monetary Fund is warning of a hunger crisis, and the first revolts and looting are apparently already emerging out of necessity .

A day after Binance suspended trading, the government responded harshly: It ordered telecommunications companies to block or restrict access to three exchanges: Kraken, Coinbase and, of course, Binance. She also summoned several Binancen employees for questioning, and Onanuga floated the idea of ​​suing the exchange for $10 billion in damages to the BBC.

Exit with extremely tight deadlines

Binance admits that it is under increased surveillance by the Central Bank of Nigeria, which has expressed concern about suspicious payment flows. However, she rejects the fact that the government would sue the stock exchange for $10 billion; she hadn’t heard anything about it. Onanuga later emphasized that he was not talking about an actual pending lawsuit, but rather about a possible amount that the government could claim.

Nevertheless, Binance reacted decisively: the exchange announced on March 5 that it would suspend all services in Nigeria. Users are encouraged to withdraw their naira, trade or convert it into other cryptocurrencies. The delisting schedule is unusually tight, even for the crypto industry: deposits will be stopped immediately, and withdrawals will no longer be supported from March 8th. Naira balances are then exchanged by Binance for USDT, at a standard rate of 1,515 Naira per dollar, which is the average price over the last seven days. All pairs in which the Naira appears are then delisted.

In a sense, Binance is coming to terms with the Naira and the Nigeria location on a bad but decent note. The unusually short grace period threatens to trigger turbulence; with the fixed price, Binance prevents this from manipulating the price on its own platform, but this could also lead to further manipulations. It could also be dramatic that with the end of the Naira marketplace on Binance, a gate will close to swap the stumbling Naira for the stable Tether.


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