Naira Declines Despite Cryptocurrency Traders Continue Attack

Naira declines despite $17.938 billion in market turnover as cryptocurrency traders continue to attack it.

The naira was supported at a little over N1000/$ this year by a healthy supply of US dollars worth over $17 billion in the foreign exchange (FX) market, but signs have surfaced that the local currency started to decline more quickly last week.

The deterioration of the value of the naira can be attributed to the resurgent attacks by cryptocurrency traders who influence the market through cryptocurrency exchanges other than Binance.

Compared to the $12 billion NAFEM turnover in the first quarter of 2024, the importers and exporters (I&E) had a turnover of $6.52 billion in the first quarter (Q1) of 2023.

The Nigerian Autonomous Foreign Exchange Market (NAFEM), often known as the official window, is supervised by FMDQ Exchange. During trading hours, a dollar was sold as high as N1,410 and at a low rate of N1,051, despite Friday's $309.01 million daily market turnover on April 26.

An anonymous cryptocurrency trader claimed that some platforms are being used by traders in a way that causes the naira's exchange rate to decline at both official and parallel market windows as soon as the USDT starts to rise on any peer-to-peer (“P to P”) scheme.

“The truth is that some people like we all know bought dollars at N1,800/S and above in the first quarter of this year. Some are still reluctant to sell. So, rather than lose, they have devised the means to once again manipulate the exchange rate to get dollar rise again to a point they can resell and reduce their losses or even make gain,” according to report.

Experts fear that a coming catastrophe that might further depress the value of the Naira has begun to seep in. They defined P2P as a financial trading technique that has operated outside the established banking and financial channels.

The Nigerian Communications Commission, acting on behalf of the Federal Government, recently blocked the websites of Binance and other cryptocurrency companies in an effort to stop what it saw as ongoing manipulation of the foreign exchange market and unlawful money transfers. It is reported that one of the accounts involved over $15 billion in trading activity in the previous year.

Also, it detained two high-ranking officials of the cryptocurrency exchange Binance, amid government efforts to curb naira speculation by clamping down on cryptocurrency exchanges.

Crypto traders reportedly now utilize messaging apps like Telegram, which has an in-app wallet, and alternatives like Bybit, Bitget, Kucoin, and Coincola to conduct transactions while the websites of Binance, Coinbase, and Kraken are unavailable in the nation.

However, the Chairman of the Economic and Financial Crimes Commission (EFCC), Ola Olukoyede, highlighted the steps being done to safeguard the naira and boost the economy, stating that roughly 300 foreign exchange accounts have been frozen to guarantee the security of the foreign exchange market and safeguard the economy.

There was a noteworthy 61 percent increase in forex trading volumes with transactions involving a willing seller and a willing bidder. The amount that was traded at the Nigerian Autonomous Foreign Exchange Market on Wednesday, Wednesday, was $318.08 million, higher than the $197.54 million.

The CBN's sales, according to analysts, only make up 3.2% of the $17.938 billion in overall market transactions during the same time period.

The apex bank began selling dollars to BDCs this year, and in the last two months, it has also sold about $60 million to them.

A Bloomberg report last week stated that Nigeria was using up its foreign exchange reserves at a rate not seen in four years due to the increased turnover in the FX market. This raised concerns that the central bank was using its dollar holdings to support the naira, even though it had previously promised to allow the currency to float more freely.

The Central Bank of Nigeria's Governor, Olayemi Cardoso, responded by saying that the naira's recent strong gain (before to last week's depreciation) is a positive outcome of policy action to reduce inflation, not because the government has been intervening to support it.

Bloomberg's calculations based on the most recent available data from the CBN show that as of April 12, liquid reserves had dropped 5.6% since March 18, when the naira began its recovery from record-low levels against the dollar, to $31.7 billion.

“It is not our intention to defend the naira,” Cardoso said on Wednesday during an event at the spring meetings of the International Monetary Fund and World Bank in Washington.

“The shifts you've seen in our reserves have really little or nothing to do with defending any naira and that's certainly not our objective.”

He said the shift in the reserve is what is found in “any country's reserves situation, where for example, debts are due and certain payments need to be made, and they are made because that is also part of keeping your credibility intact.”

“We are looking toward ensuring that we have a market that operates on its own: Willing buyer. Willing seller. Price discovery,” he said. “Ultimately, I perceive a future where the central bank will really not need to intervene except in very, very unusual circumstances.”

“What is important to us is that there's sufficient liquidity in the market.”

Data provided by Bloomberg indicates that's the largest fall in a comparable period since April 2020.