Crypto Trades Sweeps Naira to a historical New Low in Parallel market

By: Micheal Wilson

July 29, 2022 3:35 AM

Nigerians amassing cryptocurrencies to protect assets against a declining naira have contributed to a slump in the fiat currency to a historical low in the unauthorized market.

The naira weakened to 670 per dollar on Wednesday said Abubakar Mohammed, an operator of a bureau de change that tracks the data in Lagos, the country’s commercial hub. This compares with 424.34 naira at the authorized spot market as of 9.22a.m. original time, 58% cheaper than the rate in the black market, where the greenback is freely traded.

Nigeria, which is Africa’s largest economy operates a multiple exchange rate system dominated by an authorized rate, which is tightly handled by the Central Bank of Nigeria. There’s also an unauthorized black market, where the rates are mostly decided by supply and demand, making it a clear reflection of naira’s value. A third, the crypto exchange rate, has surfaced as Nigerians hastily amass the digital asset due to scarcity of the local currency from authorized sources accelerated by three devaluations since 2020.

Furthermore, people are purchasing cryptocurrencies because they're losing confidence in the naira, Aminu Gwadabe, chairman of the Association of Burau de Change Operators of Nigeria, said by phone. “ The USD rate on the crypto floor is employed in deciding the worth of Naira which is Nigeria's local currency, ” Gwadabe said.

While financial institutions are prohibited by the central bank from facilitating cryptocurrency trades in Africa’s largest economy, many Nigerians quietly trade the digital currency in in the peer- to- peer market where trades are priced in dollars.

The banknote was quoted at 687.6 naira on Wednesday for peer- to- peer trades, according to live data on the website of Binance, the world’s biggest crypto exchange, an indication the naira could soften further in the unauthorized market as it got to 710 naira per dollar.

People are buying dollars to pick up digital assets, Gwadabe said. “ The USD buy rate on the crypto floor is moving at the same time with local rate, ” he explains.

The Binance platform shows Nigerians had managed $103,691 of trades in digital currencies in 24 hours. Nigerians traded $185 million of Bitcoin on the platform in the first three months of the year, holding for a quarter of transactions in the same period on Paxful, a peer- to- peer crypto trading platform.