Despite all efforts made by the Central Bank of Nigeria (CBN) to address the exchange rate volatility of the naira since the Bola Tinubu administration announced the floating of the Nigerian currency to peg the activities of unwholesome middlemen, stakeholders continue to wonder why the naira is still in free fall.
The CBN had initiated a comprehensive strategy to enhance liquidity in the forex market, including unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for Bureau De Change operators, enforcing the Net Open Position limit for commercial banks, and adjusting the remunerable Standing Deposit Facility Cap.
Yet, the naira keeps dropping in the forex market.
Indeed, there are palpable factors that have aided the fall of the naira, as explained by the CBN. For instance, the apex bank reported that Nigerians spent about $98 billion on foreign trips, medical tourism, and overseas education, a figure the bank said was more than the total foreign exchange reserves of the apex bank.
Responding to that alarm, the Economic and Financial Crimes Commission (EFCC) raised a 7,000-man special task force across its 14 zonal commands to clamp down on dollar racketeers and reduce the pressure on the naira.
The floating of the naira means people can get forex at the banks for whatever rate the banks can afford to sell it. Banks and other institutions can buy and sell dollars at their rates.
Financial experts say, ordinarily, this should have been sufficient enough to boost the power of the Nigerian currency.
However, despite all these measures, it appears that the unfortunate crisis bedevilling the naira has the voice of Jacob, but the hands of Esau.
According to a document obtained, recent intelligence reports have highlighted continued illicit activities within the Nigerian foreign exchange market, in both virtual and in physical transactions, and one name has been a reoccurring decimal – Binance.
The Binance platform describes the organisation as a cryptocurrency exchange that lists more than 350 cryptocurrencies globally. In addition to cryptocurrency trading, it offers several services that enhance the experience for users and blockchain developers.
The report said the crypto platform’s merchants list their exchange rates for buying US dollars for Naira and aim to attract sellers by proposing high Naira values for the US dollar.
To remain competitive and attract sellers, the report said merchants advertise higher dollar-to-naira rates than they are willing to pay, causing the visible dollar rate to increase and the implied value of the naira to decrease.
“This practice has contributed to the Naira’s 113.1 per cent devaluation against the US dollar from February 9, 2023, to February 15, 2024. This implies an average daily depreciation rate of 0.3 per cent over the last 371 days – a period of high activity on the Binance platform,” the report said.
In June 2023, The Securities and Exchange Commission (SEC) ordered Binance, which happens to be the world’s largest cryptocurrency exchange, to halt its operations in Nigeria for courting investors through an illegal website.
“Binance Nigeria Limited is hereby directed to immediately stop soliciting Nigerian investors in any form whatsoever,” SEC said.
Sources close to forex regulators in Nigeria said the government had sought several avenues to reach a middle ground between an outright ban on Binance crypto assets and their unregulated use, but the platform has been adamant, continuing its manipulation of the nation’s forex market and illicit movement of funds.
Curiously, the Nigerian regulators were not acting alone. That same week, the U.S. Securities and Exchange Commission sued Binance and Coinbase for allegedly breaching its rules.
Scores of other countries have either outrightly banned or restricted the operations of Binance, including the UK, Japan, Singapore, Canada, The Netherlands, China, Turkey, Indonesia, and Nigeria’s neighbour, Ghana.
There are specific country-by-country examples of how Binance has been violating regulatory standards and undermining legitimate forex trade.
In November 2023, Binance and its CEO pleaded guilty to federal charges in the US for violating anti-money laundering laws and facilitating transactions with sanctioned entities and individuals.
They agreed to pay over $4 billion in fines and forfeitures.
In June 2020, Binance was accused by the Japanese Financial Services Agency of operating in Japan without a license and enabling money laundering activities. Binance denied the allegations and claimed to have no exchange business in Japan.
In February 2020, Binance was accused by the Brazilian tax authorities of evading taxes and laundering money through its platform. Binance denied the allegations and claimed to comply with local regulations.
In April 2019, Binance was blacklisted by the French financial regulator, Autorité des Marchés Financiers, for offering crypto derivatives products to French investors without authorization.
In July 2020, Binance was warned by the UK Financial Conduct Authority for operating in the country without a license and posing a risk to consumers and the financial system.
According to sources, the list of countries that have taken action against Binance is endless.
However, some financial experts say what worries monetary regulators the most is how the continued use of digital currencies such as Binance raises concerns about potential exploitation for money laundering and a means for receiving proceeds of crime by criminal groups in the country.
They say recent events have indicated that the decentralised nature of crypto poses a risk for exploitation in financial exchanges.
It is easy to see why criminals, including terrorists and cybercriminals, can convert illicit funds into cryptocurrencies, transfer them across borders, and then convert them back into conventional currencies, making it difficult for authorities to trace the origins of the funds.
It can also offer a means for corrupt officials and businesses to siphon and clean up the proceeds of corruption.
The world over, cybercriminals exploit the lucid nature of crypto to receive proceeds of crime mostly from unsuspecting victims; an occurrence for which Binance has been punished or banned in many countries.
No doubt, the digital currency ecosystem offers substantial economic growth opportunities. However, as the creation of tech personalities for financial exchange, operating independently of any central regulatory framework or authority means that it is exposed to exploitation for money laundering and financial crimes.
It is therefore important for platforms such as Binance to operate responsibly and support the financial stability of countries where they operate rather than undermine it.