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Nigerian Crypto Shakeup: Will Delisting Naira from P2P Save the Currency?

Nigeria’s recent move to delist the Naira from peer-to-peer (P2P) crypto trading platforms has sent shockwaves through the African crypto community. The stated goal? To combat alleged manipulation of the Naira’s exchange rate. But will this bold step truly strengthen the Nigerian currency? Experts are skeptical.

The Nigerian government and the Securities and Exchange Commission (SEC) believe P2P platforms provide a breeding ground for manipulating the Naira. However, some argue that the impact of P2P on the broader foreign exchange market might be limited.

According to a financial economist in Lagos  who wants to maintain anonymous ”P2P transactions represent a relatively small portion of overall forex activity,”  “While manipulation might occur, focusing solely on P2P ignores larger structural issues affecting the Naira’s value.”

These structural issues include Nigeria’s dependence on oil exports and a persistent trade deficit. Until these are addressed, the Naira’s stability might remain vulnerable.

According to an article on Vanguard, the decline in the supply of dollar into the economy is the root cause of naira depreciation, “The supply of dollars into the economy has been declining while demand for dollars remains relatively unchanged courtesy of the country’s huge demand for dollars fuelled by dependence on imported goods for many economic activities.

This is reflected in the persistent fall in the nation’s external reserves, which represents the amount of dollars and foreign currency available to the country for importation and transactions with other countries.

Secondly, A very critical measure of forex inflow and outflow into the economy is Net Forex Inflow, NFI. When inflow is more than outflow, NFI rises. When outflow surpasses inflow, NFI falls. Data from the CBN shows that Net Forex Inflow into Nigeria has been falling since 2019.

Data from the CBN shows that the nation’s external reserves fell by $3.23 billion or 8.5 per cent to $33.92 billion on July 9 from $37.15 billion on December 31st, 2022.

Foreign exchange inflow, which represents supply, into the external reserves, comes from export earnings, diaspora remittances, foreign investment, foreign aid, external loans etc.

The delisting also raises concerns about stifling innovation in the Nigerian fintech space. Crypto has emerged as a powerful tool for financial inclusion, allowing individuals to bypass traditional banking limitations.

Shutting down P2P platforms altogether might not be the most prudent approach, suggests Instead, focusing on robust regulations that allow for responsible crypto use could be a more sustainable solution.

The delisting of the Naira from P2P platforms is a significant development in the Nigerian crypto landscape. While the government’s intention to protect the currency is clear, its effectiveness remains debatable. Addressing the root causes of the Naira’s instability and fostering responsible crypto regulation might be a more long-term solution for a sustainable Nigerian financial ecosystem.

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