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Refuge from the Naira: Why Nigerians are Turning to Stablecoins in an Unstable Economy

by Thelma Opurum

Nigeria, Africa’s most populous nation, is no stranger to an unstable economy. What may be strange is the growing trust more and more Nigerians are gradually having in private currencies such as stablecoins. A combination of currency devaluation, high inflation, and limited access to traditional banking services appears to be incentivizing alternative financial and investment options. 

Enter stablecoins—cryptocurrencies pegged to stable assets such as the US dollar for example—which are increasingly gaining traction among Nigerians. As far as these Nigerian adopters are concerned, stablecoins offer a safe haven in a stormy economic sea. And the Nigerian story is not so different from the climbing stablecoin adoption in Argentina (as recently reported on CoinDesk), a country that also faces similar economic turbulence. Columbia, Brazil, and Mexico are not left out.

Economic Parallels: Like Argentina, Like Nigeria

Drawing parallels from Argentina’s economic struggles, where inflation rates soared above 200% last year, offers valuable insights into Nigeria’s current challenges. Argentina, facing a severe economic crisis and a plunging peso, witnessed a surge in stablecoin adoption. A report by Mexican-founded crypto exchange Bitso revealed that 60% of Argentine crypto purchases on their platform were for dollar-based stablecoins USDT and USDC, underscoring a widespread desire for stability amidst economic uncertainty.

Read also: Introduction to Stablecoins: USDT, USDC, and BUSD

Erosion of Trust: Naira’s Wobbly Journey

The Nigerian naira has faced years of devaluation, losing over 70% of its value against the US dollar since 2015. This volatility and instability erodes the purchasing power of Nigerians, making it difficult to save and plan for the future. Stablecoins, pegged to stable assets, offer a sense of security, as their value remains relatively constant compared to the relatively volatile and fluctuating naira.

Inflation’s Bite: Preserving Value in a Price Surge

Nigeria currently grapples with inflation, exceeding 20%. This significantly impacts the buying power of the naira. Everyday goods become more expensive and traditional savings methods lose their effectiveness. Stablecoins backed by more stable fiat currencies and other assets, being relatively inflation-resistant, offer a hedge against rising prices. This is why with stablecoins Nigerians are provided the option of  preserving the value of their hard-earned money.

Beyond the Bank Branch: Financial Inclusion via Crypto

A significant portion of Nigerians, particularly in rural areas, lack access to traditional banking services. Stablecoins, accessible through smartphones and the internet, offer a gateway to the financial system, enabling them to receive, store, and even send money without relying on physical banks. This fosters financial inclusion and empowers individuals previously excluded from traditional financial avenues.

Read also: Tether (USDT) Stablecoin: Use Cases and Pros and Cons You Should Know

Bridging Borders: Faster, Cheaper Remittances

International money transfers often involve high fees and lengthy processing times. For Nigerians abroad sending money back home to support families, stablecoins offer a faster and cheaper alternative. Transactions using stablecoins are quicker, borderless, and incur significantly lower fees compared to traditional remittance channels.

Breaking Barriers: Bypassing Capital Controls

Capital controls in Nigeria restrict the movement of large sums of money across borders. Stablecoins offer an easy option, allowing for seamless international transfers often without the need for intermediaries. This provides Nigerians with greater control over their finances and the freedom to move their capital as needed.

Beyond Savings: Exploring Investment Avenues

Nigerians see stablecoins as a way to diversify their investment portfolios beyond traditional assets like stocks and real estate. Stablecoins offer exposure to global markets without the complexities of traditional stock trading, providing a potential avenue for capital appreciation and wealth creation.

Stablecoins as the bridge

 Stablecoins, such as USDT and USDC, help to bridge the gap between crypto and fiat, providing not only easy conversion from one type of money to the other but also ensuring liquidity. This is why stablecoins are increasingly seen as the easy entry point into the crypto space, offering relative stability, speed, and flexibility..

Stablecoins as an alternative/complimentary windoe to foreign exchange (FX)

Particularly since 2015, if the Nigerian foreign exchange market was a dance floor, there is hardly no style of dance Nigeria’s apex bank has not tried to woo Nigerians to go on a trust date with the Naira again. From one circular to the next, the Central Bank of Nigeria (CBN) has continued to make efforts to close the large gap between USD supply and the ever-growing demand for the green back. Due to the failure of the traditional FX window to meet these USD demands, stablecoins have become a window to FX. In fact, some followers have wondered what the Naira-USD exchange rate could have been today if all USD demands were concentrated in the traditional FX window.

Looking Ahead: Navigating the Future with Crypto

As economic challenges persist in Nigeria with devaluation, inflation, and relatively low financial inclusion rate,, the demand for stablecoins is likely to continue rising. However, regulatory clarity and education remain crucial to ensure safe and responsible stablecoin adoption.

Interestingly, by virtue of its December 2023 circular on VASPs and bank accounts in Nigeria, the CBN, has effectively pushed all virtual asset service providers (VASPS) to the Securities and Exchange Commission (SEC) by requiring SEC license for all VASPs in the country. If the most common use cases of stablecoins in Nigeria is anything to go by, it is obvious that the CBN may need to review its guidelines further as the SEC does not have the statutory authority to regulate the common use cases of stablecoins in the country. Thankfully, the Money Laundering Act 2022 can help Nigeria ensure that there is improved transparency and trust as the use of virtual assets, whether stablecoins or not, are concerned. VASPs, particularly digital asset exchanges, crypto wallet services, over the counter (OTC) traders, and peer-to-peer platforms should pay close attention to this regulation.

Whether stablecoins offer a definitive solution or simply a temporary haven remains to be seen, but one thing is clear: Nigerians are actively shaping their financial future, with crypto playing an increasingly prominent role. 

Read also: Major use cases of cryptocurrencies in Africa