By Chukwudi Iwuchukwu
Last year by this time
The dollar rate was stable.
It was 730 to $1.
It was the same at Binance P2P.
USDT was stable and pegged at 730 to $1.
So what changed between last year and this year that caused a 60% Naira depreciation?
The answers are two.
Tinubu’s incompetence
And then speculators
Walk with me as we explore these two factors.
Last June, this present government made an audacious move.
They were bold enough to unify the official FX rate and the parallel market by floating the naira.
A very bold thing to do, which was the right thing to do too, but where they failed with this attempt is this
No country in the world floats its currency without a backup in case of volatility.
And so, when the speculators who are in business to make money saw the flaw in what this government was trying to do,
They leveraged that to strike, and that is why, from June until now
Naira has been on a free fall with no fundamental or excessive demand to back the reason why it is depreciating.
Let me explain
The same people who bought the dollar last year are the ones who are still buying it this year.
As of this time last year,NNPC was not remitting dollars to CBN.
The same position is still true today.
Nigeria was not invaded by aliens demanding dollars to justify this depreciation of our currency.
The CBN’s situation hasn’t worsened since December; it’s improved.
The dollar supply hasn’t worsened since December; it’s improved.
Capital importation hasn’t worsened since December; it’s improved.
In just two weeks, we attracted over $1.8 billion in inflow from capital importation.
Also bear in mind that as of last year, we had supply issues as banks were not selling dollars, which you can only get from the black market, but still, the naira was a stable
I remember vividly when I needed $10,000 urgently last year.
I bought from my dollar plug, Adamu, who sold to me at 730 as Zenith Bank did not have a dollar to sell.
The same Zenith bank does not have dollar to sell as of today but dollar has magically gone haywire since that time.
Which leads me to the second leg of the conversation.
Binance speculators
Before 2020, the P2P market on Binance was not mainstream.
Every Tom, D*ck, and Harry could buy USDT at Binance at the official rate using their naira card.
The official rate was the country’s exchange rate, which was what Binance was selling its USDT at at the time.
Until Emefiele struck in February 2020 by banning crypto
The P2P market became mainstream, and the channel where you go to buy your USDT
The P2P market was largely insignificant because it was a small market in the forex ecosystem until last June.
Let me digress.
In 2020, the country witnessed the largest conversion of young Nigerians into crypto because we had a bull run that year.
Many people were demanding USDT at a level we have not seen till date.
For all these demands in 2020, the naira rate was stable.
I think 450 to $1 at that time.
It is quite strange and ironical that when there is no demand for USDT, the dollar rate at Binance is going up every hour for no reason and no fundamental reason to back this increment up.
South Africa has a bigger P2P market on Binance than Nigeria.
South Africa has a daily volume of $30–50 million, but the South African currency, the rand, is stable and does not depreciate the way the Naira has been doing since last year.
Nigeria has a daily turnover of just $1 million on Binance P2P.
It was the same volume last year.
Instead of stability since there is no excessive demand for USDT, what we have seen is price manipulation by large traders in that segment who trade large amounts of dollars.
Yesterday, I was on Binance all day, and what I saw was mind-blogging.
These guys on P2P wake up to start manipulating the naira price with no demand backing that up.
I watched the price go from 1700 to 1850 in less than 3 hours.
I checked, and I did not see any excessive demand for USDT from the buyers to warrant this depreciation. Rather, what I saw were 4-5 traders on Binance playing a game among themselves, moving funds around, and then the price went up.
Just like that, ooo.
More or less vibes and Inisha Allah.
As they are doing their price manipulation on Binance, the unofficial market, which is the BDC sellers on the street, are monitoring what they are doing to fix their own rate.
And when they are done with this manipulation , they will withdraw their gain for the day and then go to Smoke and Mirror in Lekki , owned by my brother Obi Kwes, to enjoy their profit for the day.
The USDT/Naira pair on Binance is the official black market rate where all dealers pick their pricing model from.
Both the media, FX speculators, influencers, and traders resort to Binance rates.
On Monday, I bought $5,000 from my plug, Adamu. Before he gave me the price, he checked Binance for the rate and then gave me his best price.
This speculative practice is not sustainable.
It is hurting the larger economy and the greater population of our citizens who are hurting from the madness going on in Binance.
It is more hurtful because the true value of the naira is not 1,900.
It is not even 1,500 either ; the fair value is 650 to 800 to $1, and let me explain how
The fair value of a country’s currency is calculated by these two models.
The total export of the previous year
The total amount of money in circulation
Nigeria exported goods worth $70 billion last year.
The total money in circulation was 3.2 trillion naira as of December last year.
When you juxtapose these two together, it gives you a sense of where our currency should be, which is between 650-800 but today, we are buying the dollar at 1,900 to $1 because of the incompetence and failure of this government.
The way forward
It is not too late for this government to admit that their floating gamble has failed and then wake up to take charge before things get worse than this.
And this is what I expect them to do.
1) Admit that you failed as a government by floating the naira without a backup in case of volatility.
2) introduce a managed float by pegging the exchange rate of your currency to a price, which should be in the range of 650–800, and then do all you can to defend it, which will run speculators out of town.
3) As of today, there’s no coordination between Wale Edun, the minister of finance who is responsible for the fiscal aside, and Cardso, the CBN governor, who is driving the monetary policies.
This needs to change, and it’s not good enough.
We need to see a sense of urgency from this government.
They are too lethargic, and things are going haywire.
Trust me, these speculators on Binance are making a fortune speculating on our currency, as speculation is actually a lucrative business.
George Soros once made $1 billion in a day, speculating, betting against the British pounds in 1992.
So speculating on Binance is giving these guys insane money that trading crypto wont give them, and this is why they won’t stop anytime soon.
They won’t stop till they drive the price of the dollar to 3,000 to $1.
Is this what the government wants to see before they take action?
Igbo people have a saying that says
Taa bu gbo, which means today is early, so I expect to see an action from Wale Edun and Cardoso to halt these madness going on before the speculators in Binance, who are in minority, push our economy to Lebanon and Venezuela because of their failure to act.
This is where they are heading to but are we going to allow Binance speculations to succeed?
The ball is in the court of this government to act
