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By Uche Usim
With naira tumbling to an unprecedented low level of N1,850/$1 on Wednesday, analysts say the Nigerian economy is currently in the Intensive Care Unit, literally speaking.
However, in response to the devastation, the Central Bank of Nigeria (CBN) and the Office of the National Security Adviser (ONSA) have announced a partnership designed primarily to investigate and commensurately penalise those involved in illicit activities within the foreign exchange market, locally and internationally.
The victim of the currency manipulation is the naira and the alleged manipulators are some bureau de change and crypto currency traders.
Unfortunately, the crypto currency ecosystem is neither charted nor regulated by the Securities and Exchange Commission (SEC) and the CBN.
This makes the risk huge and criminals able to get away with fraud.
According to a statement from ONSA signed by Zakari Mijinyawa, the head, strategic communications, its collaboration with the apex bank seeks to sanitise the foreign exchange market.
Experts note that many manipulators operating through various channels are exacerbating the depreciation of the naira and contributing to inflation and economic instability.
Solutions on the table include plans by the federal government to block the online crypto currency platforms of Binance and others to stop the continuous manipulation of the forex market.
In Nigeria’s unregulated P2P crypto market, a manipulative tactic known as spoofing casts a long shadow. Here, individuals or groups place large buy or sell orders on the platform without intending to execute them. This creates a false illusion of high demand or abundance, influencing others to buy or sell at manipulated prices. This deceptive practice, often used in conjunction with pump-and-dump schemes, preys on unsuspecting investors, leaving them with significant financial losses and as in the case of naira, has resulted in creating Fear Of Missing Out (FOMO) and price depreciation and devaluation.
The previous CBN guidelines, while aiming to curb banking involvement with crypto, leave the P2P space largely unsupervised and taken over by unprofessional people profiting at the back of the country. This regulatory vacuum allows spoofing and other manipulative tactics to flourish in P2P market, jeopardizing the integrity of the market and eroding investor confidence. A review of the existing guidelines is crucial to address this Wild West situation. Implementing stricter measures for P2P platforms, robust transaction monitoring systems, and clear penalties for spoofing would deter such activities and foster a safer trading environment.
CBN’s intervention, experts note, is not just about protecting investors but also safeguarding Nigeria’s financial stability. The potential of the crypto industry cannot be ignored, but its growth must be accompanied by responsible regulations.
ICT experts insist that addressing spoofing and other manipulative practices through a revised regulatory framework is essential to ensure the sustainable and healthy development of Nigeria’s P2P crypto market is entrenched.
Binance, a digital assets platform, serves as a window for peer-to-peer transactions allowing users to advertise interest to sell or buy currencies of their choice.
In September 2023, Nigeria’s Securities and Exchange Commission (SEC) placed a disclaimer on Binance Nigeria Limited, saying the platform was “neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal”.
Despite the stern warning, many called the regulator’s bluff and patronized binance. The firm continued its operation, attracting huge patronage especially among urban youths and suspected speculators and money launderers.
Aside from suspicions of economic sabotage, officials also speak of national security concerns as the platforms are often patronised by other criminal groups including for payment of ransom.
Law enforcement sources told premium times that the digital asset platforms are also routinely deployed for manipulation of forex values through fake deals that serve to prop up values or cause a fall.
“A source at the Economic and Financial Crimes Commission (EFCC) involved in probing criminal complaints against digital asset platforms, who was however not authorised to speak to the press, described the process as a “sophisticated heist against the Nigerian economy”, the online medium stated.
According to her, by allowing simultaneous opening of buy and sell windows for a single user, manipulators often fake interest to sell dollars which they then buy at a speculated rate to themselves through the buy window.
“This therefore gives the dollar a fake value against the naira which then sets a frenzy and misleads the market. This fake price is then often quoted by BDCs who raise their prices to meet the Binance benchmark even without any corresponding demand in that segment,” she said.
A senior government official described as “troubling” the bearish downward trade of the naira against the dollar in the last 10 days, attributing it to artificial devaluation caused by the speculative sites.
“Through manipulative rent seeking, Binance’s global reach results in higher USD to NGN exchange rates often being used as a benchmark for currency trading, misleadingly devaluing the Naira in global markets.”
But he added that trading on the platform is encouraged by activities of money launderers and terrorist financiers “who have no qualms with the arbitrage”.
“We started noticing this sharp trend from February 9, and since then it has caused significant devaluation of the naira against the USD. This is simply criminal,” he said.
Binance has had similar accusations of currency manipulation and unethical conduct leading to sanctions in many countries and an ongoing lawsuit in the United States.
If the government decides to invoke a ban on the digital asset trading site it would be treading the path of countries like Malaysia, France and Malta, among others.
Nonetheless, the apex has continued to fight ferocious headwinds to stabilize the forex market.
Last week, it rolled out three new circulars all of which focused on checking potential infractions on the demand side of forex.
For instance, in the first circular titled “Allowable channels for payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA)”, the CBN directed all authorised dealer banks to restrict PTA/BTA payout to electronic channels only, including debit and credit cards.
“In line with the bank’s commitment to ensure transparency and stability in the foreign exchange market and avoid foreign exchange malpractices, All Authorized Dealer Banks shall henceforth effect payout of PTA/BTA through electronic channels only, including debit or credit cards,” the circular stated.
The CBN also urged all authorised dealers and the public to adhere to this directive promptly to facilitate a seamless transition to electronic payouts.
In the second circular, the CBN revised upward, the allowable limit of price deviation for exports and imports to -15.0 per cent and +15.0 per cent of global average prices respectively from -2.5 per cent and +2.5 per cent previously, citing global inflation dynamics and other related challenges as reasons for the review.
Lastly, the CBN directed banks to limit cash pooling on behalf of IOCs (that is, the transferring of offshore funds to parent accounts) to a maximum of 50.0 per cent of the repatriated export proceeds in the first instance, and the remaining 50.0 per cent after 90 days from the date of inflow of export proceeds subject to the fulfilment of all documentation requirements.
In a circular issued to all authorized dealer banks tagged; Requirements for Foreign Currency Cash Pooling On Behalf of IOCs in Nigeria, signed by the Director, Trade and Exchange Department, CBN, Dr Hassan Mahmud, the apex bank stated that it has observed that the proceeds of crude oil exports are transferred offshore to fund parents account of IOCs, which has led to the impact in the liquidity in the domestic foreign exchange market.
The CBN stated that while it strongly supports the need for IOCs to have easy access to their export proceeds to meet their offshore obligations, this must be done with minimal negative impact on liquidity in the domestic foreign exchange market.
