The Vice President should know that the Central Bank is especially concerned about currencies and monetary policy. As a currency, cryptos are, for now, very inefficient, as noted by Janet Yellen. It is still very clumsy to buy things with them. And if tomorrow central banks fold up and allow cryptos to take over, that should mean the end of governments everywhere.
In the first place, it could be in the reportage, but the choice of words employed by Vice President Yemi Osinbajo in ‘chastising’ the Central Bank of Nigeria (CBN) and other regulators over their policies concerning cryptocurrencies rather put down those institutions and portends another imminent policy reversal, after all he is the de jure, if not de facto, chairman of the nation’s economic committee. However, I have good reason to try and set the good professor straight on this touchy and trending matter. From what I have heard from his students at the University of Lagos, Professor Osinbajo is a legal genius, who could reel out whole books extempore in many aspects of jurisprudence. His interpretation of economics, however, needs some urgent intervention, for the good of Nigeria. No one knows it all.
One of the more articulate – some will say vehement or angry – reactions to the recent policy renewal of the Central Bank of Nigeria wherein deposit money banks were reminded not to provide platforms for the operations of cryptocurrencies, came from no less than ‘Fiyin Osinbajo, who I believe should be a son to the Vice President . Titled “Making a Case for Cryptocurrency in Nigeria”, ‘Fiyin wrote spiritedly and boldly about the error in the CBN position and gave some comparisons with how the situation is being handled in some other jurisdictions. I believe strongly that his position greatly influenced his dad’s. I also thought that it was quite bold of him because taking a public position on such a matter could become cannon fodder for detractors later. For example, cryptocurrencies are unarguably a haven for corrupt people and money launderers to try and hide and disguise their funds. Nigeria is full of corruption. If there is a blowout in the near future, will the Osinbajos not be accused of involvement/complicity on the basis of the points ‘Fiyin marshalled and how deep he could be projected to have been in the business?
From a technical angle, ‘Fiyin argued that:
1. Cryptos are great because they enable the cheap and fast movement of money;
2. Cryptos could potentially provide a platform for ‘globally available, uniform methods of exchange’;
3. Research showed that Nigerians transacted over $400 million worth of cryptocurrencies in 2020, with indigenous crypto exchanges running a larger portion of these transactions;
4. Nigeria’s involvement in the crypto world is an indicator of the arrival of our youths and their securing of a pride of place in the global tech world;
5. The embrace of cryptocurrencies could help with generating foreign inevestments;
6. Cryptocurrencies also provide ‘jobs’ for Nigerian youths. Or rather, a haven for many distraught Nigerian youths who have made a bit of money trading cryptos;
7. Cryptocurrencies do not have intrinsic value, just like fiat currencies which are willed into existence by government command.
The gentleman however acknowledged the presence of what he called ‘privacy coins’, which are cryptocurrencies that assure total anonymity for its buyers and upon which a great number of frauds are perpetuated. This is the touchpoint for the concern about the susceptibility of cryptocurrencies to crime. As a fact, not only do criminal entities find it very attractive to move their loots into cryptos, there’s also a thriving industry of criminals who specialise in stealing crypto wallets by hacking and changing passwords. The smartest people I have seen in the crypto space (especially the creators and those with huge funds called whales) never back up their passphrases and passcodes virtually, because of the number of dangerous hackers crawling all over the crypto universe. They understand that by getting into the crypto world, they have become their own banks, as such they have different queer ways of backing up their encryptions. Other small players are just trying to ride the market but the water is murky.
Fiyin also listed a number of jurisdictions where some types of cryptocurrencies are banned but made claims about the acceptance of cryptos in some countries, which are flawed. The truth is that no central bank can accommodate or encourage cryptos, which are a direct negation of their raison d’etre. Cryptos are avowed to collapse central banking, so why should central banks give them oxygen? More so, they are flawed in significant ways and traditional banking and currency systems are way more secure, more stable, more organised and more transparent, for now. We should recall that just last week, Janet Yellen, the American Treasury Secretary, warned about the speculative nature of cryptocurrencies and said that they are largely inefficient as currencies. Ditto Christine Lagarde of the European Central Bank. And Warren Buffet’s warning remains. The maverick Elon Musk bought $1.5 billion worth of cryptos but he is just that, a maverick. Bill Gates warned anyone without the war chest of Musk to be wary. Yesterday (February 28), I saw a tweet from the CEO of Binance, one of the world’s largest crypto exchanges warning people that cryptos are long term investments at best. Most Nigerian youths in this space cannot play long term, or can they?
I will go ahead and use the points made by the junior Osinbajo to solidify by arguments on why the senior Osinbajo is wrong. Then I will make a point in the realm of ideology and round up.
The point about the intrinsic valuelessness of cryptos comes up again. It remains a fact that cryptos are traded today on the basis of perceptions of how much acceptance they will gain eventually – and, of course, whether they will eventually ‘take out’ the traditional banking system. There are no fundamentals underpinning the trade.
Why the Vice President’s Admonition Is Wrong
1. The Vice President should know that the Central Bank is especially concerned about currencies and monetary policy. As a currency, cryptos are, for now, very inefficient, as noted by Janet Yellen. It is still very clumsy to buy things with them. And if tomorrow central banks fold up and allow cryptos to take over, that should mean the end of governments everywhere. It is not every hotheaded idea that people should support. What ‘Fiyin is pushing will effectively render his dad’s position useless. The control of finance is an important platform for the legitimisation of governments and maintenance of order in society. When that disappears, anarchy will reign. On the monetary policy side, as I have said in the past, cryptos are useless, even if traditional banking collapses. Central banks and governments must retain the ability to expand and contract money supply, to take care of swings caused by non-monetary phenomena (such as COVID-19). Today, governments are expanding money in order to try and reboot their economies. Tomorrow, they may start to mop up such to reduce inflation. This is not possible with cryptocurrencies in the hands of everybody and no central bank or government in between. Central banks cannot be distracted by a useless monetary tool. They should face their core business.
2. The Securities and Exchange Commission is, however, concerned with securities. Even though our SEC was willing to provide some guidance around the trading of cryptos as a financial instrument, such as a stock (shares), it has since reversed that position on the basis of additional information. On Monday, February 22, bitcoin (the first and by far most successful cryptocurrency, crashed from its all-time-high value of $58,300 per coin to $47,000, further dipping to $44,000 by Thursday February 25. As I typed this on Sunday, February 28, the price of bitcoin hovered around $45,000. This was a precipitous fall, all within a week. The sheer volatility of the ‘currency’ means that it is bad as a store of value. Yes, anyone can speculate on it, but bitcoin has recently lost its initial focus of being an alternative currency. A good currency must reasonably assure its holders of a stable value. The naira is lacking in that area but at least domestically; it is not as unstable as crypto for now. Other attributes of a good currency include portability, durability, divisibility, security, and so on. Cryptos have proven not be to too secure as I will discuss here.
3. The Central Bank of Nigeria did NOT ban cryptocurrencies. It does not have the power to do this. Even the U.S. Federal Reserve cannot, because the idea of the cryptocurrency is based on agreements by people. Some cryptos are however more transparent than others. There is a paradox here somewhere though; do cryptos enthusiasts want transparency or anonymity? Many say they are in it so that nobody can control their money or know what they have (anonymity), but others extol the transparency that the idea offers through the use of blockchain technology. One good thing that has become popular with the advent of cryptos is the idea of the blockchain, which can be deployed in global commerce, elections, etc. The Nigerian government could adopt the idea for transparent elections (the transmission of results from polling booths); but trust me, they won’t.
4. It is surprising seeing Professor Osinbajo push the idea of cryptocurrencies as a source of jobs for the youths. His son wrote from the U.K., according to PREMIUM TIMES where he published. The VP’s son has left us to our own devices here in Nigeria and his dad is pushing crypto as the next best engagement for our youths. I would have thought the VP understands optics better than this. But he has also shown himself to be very right-leaning in his understanding of economics over time. Granted that we have a comatose president, yet Nigeria started devaluing her currency in 2016 under Osinbajo’s supervision, while Buhari was away sick. We haven’t been able to apply the brakes since. The professor had a battery of market-oriented economists around him who further sold Nigeria down the river back in the day. The question is: How far has our adherence to right-leaning economics taken us as a country? Why can we not adopt some pragmatism? Under this government, the naira has been tanking. Rather than keenly focus on productivity issues, our Vice President would rather promote an illusion to the youths. If his son can afford to make a career out of cryptos, should that be extended as the saving grace to our teeming millions of youths? It can only distract them for a while.
5. The point about the intrinsic valuelessness of cryptos comes up again. It remains a fact that cryptos are traded today on the basis of perceptions of how much acceptance they will gain eventually – and, of course, whether they will eventually ‘take out’ the traditional banking system. There are no fundamentals underpinning the trade. Fiat currencies cannot even be considered totally valueless because many central banks are holding positions in gold bullion to support their currencies. The backing of government also greatly matters because every currency issued is a debt to governments who guarantee their value, subject to inflation. The case of the bitcoin is particularly instructive. The origins of this groundbreaking counter-currency remains anonymous. Also some of the rules were formed by who? For instance, there is this rule that not more than 21 million bitcoins will be mined. About 18.5 million has been mined till date, out of which about 4.5 million have been totally lost (as a result of theft, death, mistakes, forgetfulness, technological snafus and all sorts). Imagine the world anchoring its future on all this confusion! But not all cryptocurrencies are valueless. It depends on the trajectory. Facebook is launching its own cryptocurrency (Diem, formerly known as Libra). The value there is that Facebook has a community of over two billion people. If two billion people accept that as a means of exchange, then automatically it begins to rival the US dollar. Some crypto enthusiasts hate the idea that Facebook will become like a central bank (remember that the initial idea was DECENTRALISATION). However, as we know, Facebook has some backing from the U.S. government and may just swing this. I believe that the principality of the idea of decentralisation will give way in time. Why?
The VP needs to understand that where this is all going may lead to some sort of technological/corporate autocracy – where our lives will be run by machines owned by a few large conglomerates. This issue is beyond mere innovation and looking good for the camera as a nation, for in the near future we will no longer transact in cash.
6. Decentralisation has shown up with its own disadvantages, as evidenced under bitcoin and others. If we put cryptocurrencies side by side traditional currencies, with regard to consumer protection, we will see that the crypto world has little plans for the common man. Techies rule that space. Now, here we are in Nigeria with so many illiterates. What number of Nigerians traded in cryptos such that we became the second globally after the U.S.A? What is our per capita income? And how productive are cryptos? How are cryptos mined or created? For bitcoin, it is through the mounting of massive computing operations, which are said to be very detrimental to the environment. A very small operation (a crypto farm) consumes 175 megawatts of electricity per hour. Chinese people run many of them in jurisdictions like Iran, where there is cheap energy. A small company can thus consume the entire electricity generated by Nigeria in a space of 24 hours (175 multiplied by 24 hours is 4,200 Megawatts which is just about what we produce everywhere today). I think our VP should be worried about this more than just promoting the ability of our young kids to gamble on the price of bitcoin. Apart from the allure of making quick money, Nigerian youths are not involved in the tech space here beyond the periphery. It is just like someone stating some eloquent case for sports betting. And everyone knows that a smart gambler must know when to fold and run, else he loses even his capital. Why are Nigerians always drawn by flash? Is this the story of our lives? What is more? The volume of foreign investments coming in through cryptos is insignificant in comparison to what we need or what we even get from traditional sources. Lasty, what is this fixation with foreign investments when we should be thinking for ourselves?
7. Mavrody Mondial Money (MMM) used to be purchased with bitcoin. Those who believed in that ponzi scheme – many of whom lost their savings – were early enthusiasts and got in via bitcoins. Hushpuppy and all the smart fraudsters who damage Nigeria’s name beyond redemption held or are holding huge balances in bitcoins, which is a favourite of criminals who engage in Business Email Compromise (BEC). The story of Nigeria remains boldly inked in the colour of fraud. We need to be moving away from this and the VP should be helping with this. Otherwise, the grandchildren of the ‘Fiyins of this world will be judged by the activities of our many fraudsters. Cryptos have so far featured in many of these fraudulent schemes and we should be worried. To delink this from our reputation will take immense focus and efforts. There is another link between MMM and the idea of cryptocurrencies. Mavrody posed as someone who came to destroy the traditional financial system. I think we should be careful of people who ride in like a knight in shining armour regaling us on how they intend to tackle inequality, while only interested in scamming the world.
8. Cryptocurrencies debuted in 2007/8 in reaction to the failure of financial markets and their bailouts by central banks. The origin is therefore activist in nature. The proponents project an end to traditional banking and finance. But not all innovations succeed. Many innovations crash and burn. I think that the reactionary beginnings of cryptos may spell a negative destiny. However, central banks have cottoned on to the idea and are developing their own digital currencies called the CBDCs – Central Bank Digital Currencies. The idea is that people will be able to hold digital accounts with central banks and the ease of payment will be assured. The danger is that people may abandone commercial banks. All these things are in the working and our central bank is a good innovator. The Vcie President should understand that there are many smart people working in central banks – including ours. This issue is a deep one for consideration by economists.
9. The VP needs to understand that where this is all going may lead to some sort of technological/corporate autocracy – where our lives will be run by machines owned by a few large conglomerates. This issue is beyond mere innovation and looking good for the camera as a nation, for in the near future we will no longer transact in cash. Everything will be digitised This is where all this is going, if indeed they succeed. Eventually there will emerge a single global currency that will be fully acceptable from one country to another, and by anyone. There will no longer be exchange rates. There may be one single government running the world. Does that remind the pastor of something? However, this has many implications too. For one, the few conglomerates will seize the advantage for global commerce. They have already notched up big time with this COVID-19 thing. It is easier to order from Turkey or even the U.S.A via Jumia from Nigeria than to stroll to your cornershop today. Local businesses here are dying but they have no voice. So, the super-rich will get richer and the poor will be jeopardised. The second major implication is that this will have to happen side by side with the digitisation of everybody, because everyone on earth must be digitally identifiable for the trust and seamless efficiency necessary for a global currency to happen. This is where all this is going and indeed it is inevitable. I’m not sure governments should be simply promoting the idea because we as people have to imagine what governance by machines and computers will look like. Boris Johnson warned about this as an insider, in his speech at the United Nations (UN) in September 2019. But do we understand what guys like him say? Do we understand where the world is going or we merely react – as our ancestors also did?
10. My last point is largely ideological. I believe we need to undertake a pragmatic approach in our economics – an ideology that takes some ideas from the left and some from the right, having in mind who our people are and our peculiar challenges. If I had my way – if I led this country – I will be selling the idea of a lot of hard work to all of us for the next decade or two. This is time to build, build, build and maintain. We cannot be joking around, doing nothing, creating nothing, gambling, and looking for the easy ways out. We should instead be seeking how to produce as many of our needs as possible, no matter what the big brothers we look up to say. It is evident that somehow their advices to us have not quite worked. The easiest thing is what our governments have been doing and unfortunately Yemi Osinbajo is proving not to be much different. It is easy to remain in the good books of our Western friends but each time we look back, our people remain in the same spot. Or worse. It is easy to repeat by rote, the tenets of liberal economics – privatisation devaluation, demand and supply, market forces, invisible hands, etc. But critical thinking demands more depth from us as a people – especially as leaders. This crypto debate is another juncture where our leaders could try and seize control of the mentality of our young ones, many of whom are on the fast lane. They are there because of the failures and hypocrisy of the older generation. The reason we are teetering on the edge of destruction as a nation is not so far-fetched.
‘Tope Fasua, an economist, author, blogger, entrepreneur, and recent presidential candidate of the Abundant Nigeria Renewal Party (ANRP), can be reached through email@example.com.