The Bitcoin Blockchain Signifies The Golden Rule
There has been several policy changes and reversals within the Nigerian financial services sector over a short period of time. Could Bitcoin and the Blockchain have saved the sector?
There has been several policy changes and reversals within the Nigerian financial services sector over a short period of time. Could Bitcoin and the Blockchain have saved the sector from this web within which it has been entangled?
Changing monetary policies seem to have become a prevailing trend in the Nigerian financial services sector over the past few months. We have observed full-fledged bans on certain payment modes, several adjustments in the foreign currency regulations, partial lifting of bans, introduction of new financial transaction systems and several other counter-policies all within a space of six months, such that the rate of change has become a matter of utmost concern to investors within the country.
For a nation that is predominantly import-dependent, FOREX policies will always have a huge impact on the economy. Both the large and medium scale investors have been rattled by the hectic rate of change in policies witnessed within the very recent past, the latest of which being the approval of transfers from the domiciliary accounts of customers of commercial banks. One of such emails sent by Guaranty Trust Bank to its customers reads as follows:
“We are pleased to inform you that you can now transfer Foreign Currency Cash deposits made into your GTBank domiciliary account(s) via Internet Banking, Mobile App or at any of our branches nationwide, subject to a daily cumulative limit of $10,000.
Thank you for banking with us.”
There seems to be a sigh of relief with this development as investors see it as a process that will bring back the missing flexibility in their ways of carrying out transactions, even though some are still skeptical about it, due to the frequency of the change of policies lately.
“I am skeptical right now. These policies are coming too fast and do not make much sense to me. For now I think my forex is safer in my wallet, even if that makes it harder to use, I feel safer.”
Dissecting the situation
Babatunde Ajayi is the Team Lead, Corporate Finance at Investment One Financial Services Limited. He took his time to give a breakdown of how the Central Bank of Nigeria has got itself into what he refers to as ‘a mess’.
Speaking to Cointelegraph, Babatunde says:
“In the first instance, the problem started when CBN stopped the banks from transferring US Dollars deposited in cash to accounts outside the country.
At the time, CBN said they were trying to minimise or stop money laundering. However, the widespread effect was that banks piled up huge stocks of dollars in their vaults, but couldn’t transfer same out.”
“So the banks asked customers to stop bringing FX in cash, since they couldn’t do much with the cash,” explained Babatunde. “So the cash and transfer markets for FX were effectively separated. If you had USD cash, it had to stay as cash. If you had USD transferred into your account, it was more valuable."
“Because the bulk of demand for USD is for those who need USD for imports, which means they need to transfer it outside the country.
So we had one exchange rate for cash, and another for transfers. Recipe for disaster!”
Babatunde explained that Nigerians would open accounts in Ghana or the Republic of Benin, deposit cash there and then transfer out. The policy made no sense from day one.
In creating markets, you should ensure that there is little or no variation in the price of a similar/identical commodity. If not, you will create scarcity and/or opportunities to buy in one market and sell in the other.
So you remember that stock of dollars in the bank vault? It got finished. By December 2015, folks who had deposited very small amounts of FX couldn’t withdraw from the banks. The banks had no pounds, dollars, Euros, nothing. Everything ran out, and of course, everybody had stopped giving them cash, so there was no new supply.
The reversal of the policy was borne out of necessity, because in devising its policies, the CBN had effectively denied the entire system of dollars and they needed to quickly re-inject liquidity but unfortunately, I'm not sure the policy has had the desired effect so far. I mean the new policy.
“Reasons why I doubt the efficacy of the policy:
- At the same time as it was announced, CBN stopped selling dollars to Bureaux de Change.
- CBN has also reduced the frequency with which it sells USD to banks. The effect of these two steps is that USD liquidity has dried up again, which is why the exchange rate is still at $1/N305.
- The CBN has lost credibility with the public as Nigerians no longer trust the institution and so many people are still holding on to their dollars, fearing that the Bank may either devalue or reverse this deposit and transfer policy yet again!”
Babatunde continued: “Overall, I think the handling of this policy has been wrong from day one, CBN should have allowed a market-determined exchange rate, adjusting lower as oil prices continued to drop.
That way, there would have been no profit to hoarding dollars and those who needed dollars would have been able to get it at the right price.”
The Bitcoin and Blockchain Therapy
Mr. Ajayi quotes what he calls the Golden rule as follows:
“The Golden Rule - Markets are the best at allocating resources. Trying to interfere and determine who has the "right" to access a currency or any other resource, is not a good idea.
Unless it’s a war.”
Interpreting Babatunde’s “Golden Rule” to mean that the Bitcoin Blockchain remains the fool-proof medium to eradicate the phenomenon of an emotionally driven system as is being experienced within the Nigerian money market cannot be anymore closer to the truth.
No market can be more self-balancing than the market where every process and transaction is open and distributed to every single participant within it’s environment. That market is the ‘BITCOIN market’ and it’s environment is the ‘BLOCKCHAIN’.