How the Currency will React : The Impact of Nigeria's Delisting of Naira P2P.

Impact of Nigeria Delisting Naira P2P on Nigerian Currency.

In recent years, Nigeria has witnessed significant developments in its financial landscape, particularly in the realm of digital currencies. One notable development was the emergence of peer-to-peer (P2P) platforms that facilitated the exchange of cryptocurrencies, including Bitcoin, and others, using the Nigerian Naira.
However, in light of evolving regulatory concerns and emerging challenges, Nigeria decided to delist Naira P2P transactions. While writing this blog I aims to explore the impact of Nigeria's delisting of Naira P2P on the country's currency and its broader implications.

Understanding P2P and Naira P2P

Peer-to-peer (P2P) transactions involve the direct exchange of digital assets between individuals without the need for intermediaries such as banks or financial institutions. In the context of cryptocurrencies, P2P platforms allowed users to trade digital assets directly, enabling greater accessibility, convenience, and reduced costs for participants.
Naira P2P specifically referred to the trading of cryptocurrencies using the Nigerian Naira as the medium of exchange.

Nigeria's Delisting Decision

In February 2021, Nigeria's apex bank, the The Central Bank of Nigeria (CBN) (https://www.cbn.gov.ng/), issued a circular directing all financial institutions to close accounts associated with cryptocurrency transactions. The directive cited concerns regarding the potential risks associated with cryptocurrencies, including money laundering, terrorism financing, and other illicit activities. Subsequently, crypto exchanges operating in Nigeria were forced to halt Naira P2P transactions, leading to the delisting of the Naira as a trading pair on major cryptocurrency exchanges.

The SEC's Rationale for Delisting: Curbing Manipulation.

The SEC's primary justification for delisting the Naira from P2P platforms centers on concerns about manipulating the exchange rate. The Naira has faced depreciation pressures in recent times, with the official exchange rate hovering around N1400 to the US Dollar. However, on P2P platforms, the exchange rate can be significantly higher, reflecting a stronger demand for foreign currency.
The SEC alleges that this discrepancy could be a result of:

• Speculative Activity: Individuals or groups could be exploiting the platform's relative anonymity to artificially inflate the demand for foreign currency on P2P platforms.

• Money Laundering: The anonymity associated with some P2P transactions could be misused for laundering illicit funds, potentially impacting the exchange rate.

By delisting the Naira, the SEC aims to gain greater control over foreign exchange transactions, increase transparency, and potentially stabilize the Naira's value.

Impact on Nigerian Currency.

• Reduced Accessibility: Delisting Naira P2P transactions has significantly reduced the accessibility of cryptocurrencies for Nigerians. P2P platforms provided an avenue for individuals to easily convert their Naira into digital assets and vice versa. The delisting hampers the ability of Nigerians to participate in the global cryptocurrency market, limiting their access to potential investment opportunities and financial inclusion.

• Loss of Trading Volume: The delisting of Naira P2P transactions has resulted in a significant decline in trading volume for the Nigerian Naira in the cryptocurrency market. Prior to the delisting, Nigeria had emerged as one of the largest cryptocurrency markets in Africa, with a considerable trading volume. The reduced trading volume may impact the liquidity and stability of the Naira in the long run.

• Market Fragmentation: With the delisting of Naira P2P, there is a risk of market fragmentation in the Nigerian cryptocurrency ecosystem. Users who previously relied on P2P platforms may now resort to informal channels or unregulated platforms to continue their cryptocurrency transactions. This could lead to a lack of transparency, increased risks for users, and potential challenges for regulatory authorities in monitoring and enforcing compliance.

• Economic Impact: Cryptocurrencies have the potential to stimulate economic growth and attract investments. The delisting of Naira P2P transactions limits the opportunities for Nigerian businesses and startups to raise capital through Initial Coin Offerings (ICOs) or token sales. Additionally, it may deter foreign investors who seek to invest in Nigerian projects or startups using cryptocurrencies, thereby impacting the overall investment climate in the country.

• Regulatory Challenges: The delisting of Naira P2P transactions highlights the challenges faced by regulatory authorities in adapting to the rapid evolution of cryptocurrencies. Regulating digital currencies requires a delicate balance between fostering innovation and managing potential risks. The absence of clear regulations and oversight mechanisms may hinder the development of a robust and inclusive cryptocurrency ecosystem in Nigeria.

Conclusion

The delisting of Naira P2P transactions in Nigeria's cryptocurrency market will have significant implications for the Nigerian currency and the broader financial landscape. It has reduced accessibility, trading volume, and potentially hindered economic growth and investment opportunities. However, it is important to note that regulatory concerns surrounding cryptocurrencies should not be disregarded.
Striking a balance between regulation and innovation is crucial to ensure the long-term stability and development of the Nigerian cryptocurrency ecosystem. As the cryptocurrency landscape continues to evolve, it remains to be seen how Nigeria will adapt its regulatory framework to accommodate the potential benefits of digital currencies while mitigating associated risks.