Crypto wars + confusion on remittances

It has become a feature of the last decade. Whenever you hear the CBN taking some drastic action it usual has something to do with FX. The stories might get complicated and arguments might run around the obvious. Once you sharpen your lens though, the story is almost always the same: FX.

As I mentioned a couple of articles ago, the CBN has made it a policy objective to gain control of remittances, given that it is now the second largest source of foreign exchange. TL:DR; they want to do with remittances what they do with crude oil inflows: capture the dollars and allocate it to preferred sectors at “appropriate” prices.

The first target was the new fintech IMTOs. However, in the last few years crypto had also become a very useful option for evading CBN restrictions on FX use (on the demand side) and getting black market prices through a formal credible system (on the supply side). Many importers and companies with foreign obligations started using crypto to settle international transactions. Especially those without strict audit requirements. Many exporters also used crypto to get better rates than they would have gotten from official markets. A 20% premium is not a negligible matter you know.

The mechanics is simple. BTC and USD are traded freely internationally. So if you can buy or sell BTC here freely then it means you can buy or sell USD freely via BTC or other cryptos. This is before you even get to stable coins. A very effective bypass of the official FX market with its CBN manipulated rates.

But remember, the CBN is looking for those remittances. First it was forcing IMTOs to send hard cash. It can’t do the same for cryptos so I guess they opted to just tactically ban it anyway. I know it is not an official ban but its is the same type implemented for the 41 items list and IMTOs and erring exporters and so on.

Will the ban work? Where work equals redirecting remittance flows to official channels? Probably not. People are geniuses and this is crypto; the baby of decentralized government-free finance. Plus P2P is already a thing. Plus most of remittances is still just stuff!

This is also why many of the arguments made after the fact to justify the ban make little sense.

Which brings me to the second part. It is amazing the amount of confusion that has been caused by different definitions of remittances. To make it really simple: on one hand you have finance guys and accountants who define remittances as the amount of cash sent. Cash dollars or euros or bitcoin :). On the other hand you have economists and statisticians who define remittances as the value of stuff sent. Which includes cash but also include cars, shirts, TVs, laptops, purses, random gifts and so on. The finance / accounting definition is typically calculated by looking at financial transactions. The economists/statistical definition is estimated by looking at trade flows and balance of payments. and of course cash.

Which is why both numbers look very different. Does Nigeria receive $30bn worth of finance/accounting defined remittances? NO. Last estimate I saw a few years ago was about $3bn. Does Nigeria receive $30bn worth of economist/statistical remittances? Probably close. It is an estimate remember.

Importantly, if you are sitting in a fancy building in Abuja looking for $30bn worth of cash remittances to divert to your official foreign exchange market then I hate to be the one to break it to you, you are not going to find it. Although I’m sure the people in the stats department downstairs could have told you that.