Tigran Gambaryan, Binance’s head of financial-crime compliance, flew to Nigeria’s capital to solve a problem: The government had blamed the world’s largest crypto exchange for crashing the currency… He hasn’t come back. Nigerian authorities detained Gambaryan and a colleague, Nadeem Anjarwalla, a U.K. and Kenyan national and Binance’s regional manager for Africa, according to the men’s families. The Binance employees, who are being held in a guarded house, haven’t been charged with any crimes. The government, which invited them to Nigeria for meetings, hasn’t publicly discussed the detentions. 

Nigeria, Africa’s largest economy with a population of more than 220 million, has faced many currency crises before. This is the first time that crypto has played a starring role.
Nigerians flocked to cryptocurrencies in recent years to shelter their savings from a soaring inflation rate, which hit nearly 30% in January, and a plunging currency, one of the worst-performing in the world this year. Two-thirds of the population lives in poverty.  The country has the second-highest adoption of crypto in the world, after India, according to an index compiled by Chainalysis, a data provider. Nigerians received about $60 billion worth of crypto transactions in the 12 months through June 2023, according to Chainalysis. 

Because the government rationed who could exchange the local currency for the dollar and at what exchange rate, many sought refuge in digital currencies pegged to the U.S. dollar, known as stablecoins.  The stablecoin trade in essence became a black market, displaying an unofficial exchange rate between the local currency, the naira, and the dollar that was much weaker than the government’s rates. Binance, the most popular exchange, became the go-to place to check that black-market rate, according to currency traders. Bayo Onanuga, a special adviser to the Nigerian president, accused Binance of setting the exchange rate for Nigeria and hijacking the role of the central bank…A persistent gap between what the government thought the currency was worth, and the rate on Binance’s website, proved intolerable.  Onanuga told The Wall Street Journal that Binance was cooperating with authorities and compensation to Nigeria was being discussed.

Binance said it would stop any services involving the naira, dealing a blow to its efforts to rebuild its business in fast-growing emerging markets. The Nigerian Communications Commission ordered telecommunications companies to restrict access to the websites of Binance and other crypto platforms.  Olayemi Cardoso, the head of Nigeria’s central bank, suggested that crypto platforms were being used to manipulate the market. In the case of Binance, he said, $26 billion had passed through its platform in Nigeria in 2023 from sources and users whom the central bank couldn’t adequately identify. He didn’t say where the figure came from…

Founded in 2017 in China, Binance has a history of drawing the ire of governments. It has long operated without a headquarters and under the radar of regulators, offering unlicensed trading through its global website. In November 2023, Binance founder Changpeng Zhao stepped down as chief executive and pleaded guilty to violating U.S. anti-money-laundering requirements. The company agreed to pay $4.3 billion in fines, the largest ever levied on a crypto firm. Zhao is currently awaiting sentencing in the U.S. 

The use of cryptocurrencies tied to the U.S. dollar has ballooned in countries across the developing world. In economies under financial stress where actual dollars are scarce, such as Turkey, Argentina and Russia, locals have turned to crypto exchanges and the dollar-like digital currencies they offer as an alternative.

Excerpts from Patricia Kowsmann et al., Crypto Gets Blamed for a Real-Life Currency Crisis, WSJ, Mar. 12, 2024