Nigeria recently transition from a fixed float to a managed float exchange rate system, following the ousting of former CBN Governor Godwin Emefiele and the inauguration of President H.E Bola Ahmed Tinubu.
This policy change has introduced significant changes to the country’s financial landscape.
This transition has coincided with the rise in the trading volume of peer-to-peer (P2P) cryptocurrency platforms, which have gained popularity among Nigerian investors because of their role in preventing Naira devaluation and ease of doing international transactions.
The managed float system has brought wild price swings, with daily highs and lows of 840 and 460 Naira to the U.S. dollar, respectively. In light of these developments, questions arise regarding the role of P2P cryptocurrency platforms in Nigeria’s growing exchange rate arbitrage.
Understanding P2P Cryptocurrency Platforms
P2P cryptocurrency platforms have gained traction in Nigeria’s evolving financial landscape. These platforms enable individuals to engage in direct transactions, facilitating the exchange of cryptocurrencies without the need for intermediaries. Within the context of Nigeria’s managed float system, P2P cryptocurrency platforms provide an avenue for users to transact directly and navigate the volatile exchange rate environment.
Exchange rate arbitrage is a strategy employed by traders to capitalize on price discrepancies across different markets, example of these wild discrepancies would be what we are seeing today in the current I&E Window. In the realm of cryptocurrencies, exchange rate arbitrage involves exploiting price differences between various P2P cryptocurrency platforms and traditional exchanges.
One of the key factors influencing exchange rate arbitrage is liquidity. P2P cryptocurrency platforms offer a decentralized marketplace where individuals can buy and sell cryptocurrencies directly. The high liquidity on P2P platforms today increases the opportunities for users to engage in arbitrage activities.
While traders would relish and enjoy the opportunity for arbitrage opportunities like these, it calls into question the possible harm these opportunities can bring to the Nigerian economy at large.
The Regulatory Environment Today
P2P cryptocurrency platforms and exchange rate arbitrage present unique regulatory challenges within Nigeria’s managed float system. The dynamic nature of Nigeria’s P2P cryptocurrency ecosystem, coupled with the potential for market manipulation, highlights the importance of robust regulatory measures.
Adequate oversight is essential to protect investors, maintain market integrity, and ensure fair practices in the cryptocurrency P2P space. The existing regulatory framework in Nigeria, such as guidelines from the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC), do not currently provide guidelines for how crypto P2P markets should operate, which, is a contributing factor to the arbitrage we see in the market today.
Transparency is a critical aspect that regulators need to address. P2P cryptocurrency platforms must provide clear information regarding their operations, fees, and security measures.
Transparent trading practices, including fair order matching and accurate price dissemination, help mitigate risks and ensure a level playing field for participants that will not be detrimental to the Nigerian economy at large.
Interview
Nairametrics was able to interview the CEO of Manilla Finance, Manilla Finance is a P2P exchange that touts to address the current issues of exchange rate arbitrage in Nigeria.
How does your P2P platform address the potential concerns of exchange rate arbitrage within Nigeria’s managed float system? Are there any specific measures or safeguards in place to prevent or mitigate such activities?
- “Our P2P crypto exchange platform was built to address the potential exchange rate arbitrage issues within Nigeria’s managed float system. Our platform exemplifies transparency, offering real-time and accurate pricing, and eliminating arbitrage opportunities.
- “Safety is paramount to us, reflected in our stringent KYC/AML procedures ensuring a legitimate and secure user base. We’re also introducing a peer verification and rating system, creating a trusted community that promotes responsible trading.”
How does your platform ensure transparency and fair pricing in exchange transactions conducted through the platform, considering the potential volatility of exchange rates in Nigeria’s managed float system?
- “Our commitment to transparency and fair pricing on our P2P platform is unwavering, particularly given Nigeria’s managed float system’s potential volatility. We’ve employed real-time market data aggregation, an open order book, and a competitive bidding system to encourage market-driven pricing.
- We’ve also established a peer-to-peer verification and robust KYC & AML compliance framework. With these measures, we confidently provide a transparent, fair, and secure platform for all participants.”
What role do you believe P2P platforms can play in promoting financial inclusion and economic growth in Nigeria, specifically in the context of the managed float exchange rate system? Are there any initiatives or partnerships aimed at reaching underserved communities or sectors?
- “P2P platforms provide individuals and businesses, including those in underserved communities and sectors, with previously inaccessible financial services. Through our platform, users can easily engage in currency exchange transactions, access foreign currencies backed by crypto, and manage their funds more efficiently. This increased accessibility empowers individuals and businesses to participate in the formal financial system, fostering financial inclusion.
- “Our platform, for example, unlocks financial services for individuals and businesses, including those in underserved sectors. We also actively engage with underserved communities in Nigeria, forming partnerships and initiatives that promote our platform’s awareness.”
Conclusion
As Nigeria transitions to a managed float exchange rate system, the role of P2P cryptocurrency platforms in exchange rate arbitrage becomes increasingly relevant. By leveraging the potential of P2P cryptocurrency platforms while implementing effective regulatory measures, Nigeria can navigate the challenges and harness the opportunities presented by exchange rate arbitrage in the cryptocurrency landscape, fostering financial innovation and economic growth within the managed float system.
Looking for yet another scapegoat.
The strength of your currency is dependent on the value of your exports, your fiscal rules, and FDI inflows.
If the nair is falling on P2P it’s not the platform’s fault.
It’s the market, chief.
Spot on!
Also, there are still 43 items banned from accessing forex at I&E rates.
Maybe when you abolish such a list then nobody will feel the need to go to P2P or any other black market for forex.
The P2P market is not the problem and it never was as this article is trying to point out. This reminds me of Godwin Emefiele’s blunder of going after the website called Aboki Fx thinking that it was the cause of the large disparity in the exchange rates. How did that turn out?