Preamble: It was only after this essay was drafted that it came to my knowledge that Buycoinsafrica had already created and uses the NGNT (which is a naira backed stable coin and collateralized by USDC). Even though a few crypto platforms have implemented it, it still remains unpopular as many Nigerians are oblivious of its existence as I was. Its existence has proved the thesis of this essay and all that is left is the enforcement of its use by all crypto platforms in Nigeria as a form of regulation. The CBN through it’s spokespersons issued a statement that the ban was placed because it was used for criminal activity. It should be known that any form of financial transaction can be criminalised, therefore rendering the excuse insubstantial and ludicrous. This essay is directed at a feasible financial solution to protect the naira from inflation as Nigeria was the 2nd largest crypto space in 2020 which should be more of an excuse for a ban as most of the transactions are done in USD. However, financial institutions should engage modern financial investigators in this space as traditional ones are likely to get swallowed in confusion. The anonymity in the crypto space has been defeated by KYC info of exchanges which was a form of regulation, making it easier to track persons who use this space for criminalities. This essay is now uploaded here unadulterated (as it was written) to the CBN. Do have a nice read.
Originally drafted on 6th Feb, 2021
36hrs after the circular
TOPIC:
Securing the Naira and Fostering crypto economic development in Nigeria.
After perusing through the circular from the CBN signed by the Director of Banking and supervision and the Director of payments system management department, I have only been able to deduce that the signed regulation is what could be described as an "easy fix" but in reality, it is a ticking time bomb. Inasmuch as no concrete reason was highlighted in the circular for the stopping of banks from letting customers use the NGN to purchase cryptocurrencies/crypto assets, it is widely speculated that it was a form of protection by the CBN to stop excess demand of USD by Nigerians. Hence, the whole essay would be directed at that.
I refer to it as a ticking time bomb because, this "easy-fix" is going to cause Nigerians to directly demand for USD from whatever bank they use and consequently, purchase as they please. This is going to cause a surge in demand for USD and inevitably devaluing the NGN even more. How so? This circular has started a heated competition between techprenuers to provide the next viable solution to purchase cryptocurrencies. The solution is to make USD readily available to them inevitably rendering this circular futile. (USD is just an example, it could be the Ghana cedis or whatever currency they can get to faster).
However, I am one who believes that for every problem, lies a solution waiting to be discovered and in every trouble is a blessing in disguise. Nigeria was the second largest crypto market place for 2020. Recording millions of dollars in remittances and peer-to-peer trading. This makes Nigeria a hotspot for potential investment in the crypto market for Africa as a whole. But this new regulation will weaken their legs to walk into the country. Hence, why it should be reversed immediately and this essay implemented ASAP. We should think long term solutions that will add value to our Naira and enhance the economic image of this Country.
The solution we need
I immediately began my research as to why the CBN would attack a market of infinite potential. Yes, in good faith, I believe it was to protect the Naira and economy at large, but there is a more credible solution waiting to be explored by all parties involved in our economic development. This solution will secure the naira, and has a potential of increasing it’s value. Now let’s go.
Cryptocurrencies rely on P2P transaction. This means that two people exchange what they what they have for what they desire. Most transactions are done like this "Cc/USDT" (i.e Cryptocurrency for US dollar tether). USDT is the most popular stable coin which is pegged to/backed by the US dollar. Stable currencies are cryptocurrencies that are pegged to a particular traditional currency and thus, giving it a stable value. It is a safe haven for crypto traders as it is non volatile since it is backed by the US dollar. This is how the dollar remains safe from the crypto market, as traders first have to acquire this stable coin pegged to the dollar before purchasing other crypto assets. Almost all transactions on exchanges are used using this USDT stable coin and can be sent in any amount allowed by the exchange to any part of the world and then converted to a currency of choice.
To secure the Naira, we need a Naira backed stable coin. It’s benefits are thus;
1. This will reduce demand for USDT and foster demand for an NGN backed stable coin.(as crypto traders both in Nigeria and west Africa will support the currency by buying that NGN backed stable coin for crypto transactions)
2. Remittances can now be sent without any major third party using this NGN backed stable coin.(This means, Nigerians in diaspora will have to buy naira and send home, which will then be spent in Naira instead of dollars. Note that, many diasporans have sought to use other cryptocurrencies for remitting funds, so giving them this option, would be a major win for the Naira itself as buying naira influences it’s value)
3. Trust will be renewed between the CBN and Nigerian youths, who would now know that the CBN means good.
What assistance can the CBN render?
1. The CBN should immediately reverse it’s regulatory policy while discussing this innovation. (This action will keep the eyes of investors on Nigeria and legs ready to run).
2. The CBN will use its authority to enforce the NGN backed stable coins on all Nigerian owned crypto exchanges or platforms. This will create a domino effect in the restoration on the Naira’s value, as these exchanges provide services all over Africa and will consequently promote the use of intra continental Currency exchange.
3. The CBN will set up an auditing committee, to make sure crypto wallets like roqqu, luno and Buycoins, buy their bulk of crypto in the NGN backed stable coin and no longer USDT.
4. The CBN will use its influence to ensure the rapid development of this stable coin acting as a patriarch/moderator.
5. The CBN will use its influence to ensure the use of the NGN backed stable coin on international crypto exchanges and promote it’s usage among Nigerians in diaspora.
6. The CBN may not directly be involved in the development of the stable coin, but will render whatever assistance required to the start-up or crypto company that will build the NGN backed stable coin.
7. The CBN will encourage the growth of the crypto market in Nigeria by granting loans to startups for crypto Innovation as this will entice foreign investors.
8. The CBN will continue to maintain its stance on the risks involved in crypto trading and assets while fostering its growth and position in nation building and economic recovery.
In conclusion,
I chose not to talk about the advantages or usefulness of crypto investments as I know this essay will be read by the best of economic experts, both traditional and modern. This innovation’s goal is to secure the Naira and bring foreign currencies to buy it inevitably adding to its value. In time, if implemented will produce noteworthy results and would also put Nigeria and this CBN’s administration as the first to launch an African backed stable currency. Crypto traders around Africa will buy this NGN backed coin as it will be more conducive for their use.
I however, stand steadfast that this will be a giant leap in the right direction on the naira’s path to recovery. I know you mean well for Nigerians, but this regulation was a big slap in efforts of impoverished youths to get their daily bread. The same day this circulatory was released, was the same day the Ukraine government announced its plans to use it’s nuclear energy in the mining of Bitcoin thereby generating free crypto assets for their national reserve. It is also in our best interest that these innovation’s are strategically utilised for National growth and development and must not be shot on sight. This past week, over 1,400 billion dollar companies attended an event to see how they can use bitcoin as a stock reserve. In long term, this would profit their host countries in terms of tax. We should seek to foster this kind of growth too, be it by the public or private sector. The same way the E-mail came and replaced postal service, is the same way cryptocurrencies and decentralized finance have come to replace traditional finance all over the world. But like the UK’s postal service, traditional banking can take a new stance and remain relevant in the new times. Nigeria could be the first to do just that. In my youth, I have come to understand that change is the cause of man and the effect of time. It is inevitable, hence the reason to start to conform as soon as it is noticed. I ask that this essay be thoroughly reviewed by the CBN’s economic and crypto experts to see how feasible this theory is. Even though it has been done by the private sector in the US. God bless the CBN and God bless the FGN.
This essay will be published on all platforms within my reach at 12pm WAT on the 10th of February 2021 and will also be pitched in techprenuers emails if I don’t receive a formal acknowledgement of its receipt and a constructive criticism on the feasibility/implementation of this email. As it is a necessary step to take in the direction of the crypto market and it’s direct effect on the Nigerian economy. Thank you for your time.
Yours faithfully,
A concerned citizen
