The Nigerian currency, the naira, has been facing serious issues, with its value fast declining. The actions of Binance, a large global cryptocurrency exchange, have come under scrutiny as one of the factors contributing to the naira predicament.
The Nigerian government has accused Binance of contributing to the naira’s depreciation and has recently implemented a number of steps to limit the cryptocurrency platform’s operations. There, we estimate that Nigeria’s total capital importation in 2023 was $3.89 billion, a considerable decrease from $23.99 billion in 2019. This decrease is putting more pressure on the naira.
In reaction to this, the Nigerian government claims $10 billion in damages from Binance.Let’s take a look at how Binance has destroyed the naira, strengthening the dollar and lowering the naira’s purchasing power.
1. Adding to economic uncertainty
Binance’s efforts in Nigeria have resulted in increased economic instability. The platform’s involvement in currency fixing, facilitating illicit financial transfers, and allowing for speculative trading has produced an unstable situation. This uncertainty undermines confidence in the naira, contributing to its continuous decline.
2. Undermining Official Exchange Rates
Binance has been accused of allowing clients to adjust US dollar-to-naira exchange rates that differed from those set by the Central Bank of Nigeria. This behavior undermines the government’s efforts to stabilize the currency and keep control over the exchange rate, resulting in a rapid naira depreciation.
3. Fueling currency speculation.
The platform’s operations have been connected to increased speculation in the forex market. By allowing traders to bet on the value of the naira, Binance has contributed to its volatility and depreciation. This speculation is driven by a lack of regulation in the cryptocurrency industry, which allows for uncontrolled activity that can weaken the national currency.
4. Allowing unlawful fund transfers
The Central Bank of Nigeria (CBN) has expressed worry regarding suspicious and criminal cash transfers through Binance Nigeria. With $26 billion going through the platform from unidentified sources and users, there are concerns that these transactions may add to the country’s economic instability and further undermine the naira.
5. Facilitating speculative trading
Binance’s platform has been accused of facilitating speculative operations that have lowered the naira’s value. The exchange’s position in price discovery has encouraged traders to speculate, which can lead to market manipulation and worsen currency devaluation. Binance has indirectly contributed to the naira’s depreciation by offering a platform for such activities.
