Doge To The Moon

Why cryptocurrency is the last hope of the common naira

Highlights

• 1/2 Penny

• 17 Naira = 1 Dollar

• Avengers: Age of Cryptos

• Doge and Shiba Inu to the rescue

• Footnotes

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1/2 Penny

1n 1508, Pacheco Pereira, a renowned Portuguese explorer, wrote: “Esmeraldo de Situ Orbis” — a book about his exploits whoile navigating the world.

He claimed that “for eight or ten bracelets you can obtain one slave” in Rio Real, a major river town in Brazil that opened up to the New Calabar and Bonny rivers in modern Nigeria.

Interestingly, the operative word in the sentence is not “slaves” but “bracelets”. The “bracelets” Pacheco was referring to was manillas, a common currency in pre-colonial West Africa.

Manillas By me, Sailko, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=17507851

But manillas were not the only predominant currencies in pre-colonial Nigeria. People paid for things with cowries, beads, bottles, salts and many other things.

At the time, a basket of currencies circulated across Nigeria. In the Benin and Niger Delta areas, manilla was the predominant currency before cowries from Mozambique overtook it in the mid-1800s.

In Calabar and Cross River areas, people made payments with brass rods and copper wires. In Yorubaland, cowries were prevalent, while in Awka and other Igbo areas, a metal currency called umumu was more prevalent.

This continued up until 1880. Through the Colonial Ordinance of 1880, the British colonial government introduced shillings and pence as the official currency in British West Africa.

The shillings and pence were in coins. They were issued by the Bank of England and distributed by a private bank, the Bank for British West Africa, until 1912.

The denominations were one shilling, one penny, 1/2 penny and 1/10 penny.

Nigerian Shilling By Tsange - Own work, Public Domain, https://commons.wikimedia.org/w/index.php?curid=58610215

The Nigerian currency soon began to have uniformity, and in 1959, the West African Currency Board issued the first set of banknotes in Nigeria, Ghana, Sierra Leone and the Gambia.

In January 1973, one naira replaced one pound as the major currency unit in Nigeria. Ten shillings exchanged for one naira, two nairas exchanged for one pound, and one naira was equal to 100 kobo — which was the minor currency unit.

One pound note

One naira note

[Read: How Much Does 5 Naira Cost?

17 Naira = 1 Dollar

In the early 1980s, 90 kobo was about one dollar. By 1993, 17 nairas could only get you one dollar. How did that happen? It happened how it happened, I guess.

You see, the problem began in the 1970s.

In 1974, oil prices increased to $46.35 from $25.97 in the previous year. 12 OPEC members decided to stop selling crude oil to the countries they believed supported Isreal in the Arab-Israeli war, also known as the Yom-Kippur war.

Of course, there’s only one thing that happens when an important commodity gets scarce. The price of the commodity skyrockets, including the price of all the other products produced because of that commodity.

Essentially, there was oil-induced price inflation, now known in a series of events called the 1973 oil crisis. For emphasis, oil prices increased by as much as 300% during the period.

But who benefits when oil prices go up? Oil-producing countries. And what is Nigeria? You guessed right— “the largest oil-producing country in Africa”.

So, in a split second, Nigeria blew¹, and our“money stacked up to the ceiling”. The IMF says Nigeria “began to embark on ambitious public investment programs”. But we both know what that means - Lau lau spending².

Government spending increased, imports of luxury items increased, cheap food imports replaced homegrown agriculture, wage prices increased (and let’s not talk about corruption) - all of which was propped up by high forex earnings from the sale of crude oil.

However, the consequences of our actions soon caught up with us.

Oil prices fell sharply in the 1980s, and the “Dutch disease” was in full effect. We had built a huge appetite for imported items during the oil price boom, and when oil prices crashed, our dwindling foreign revenues could not support the hefty lifestyle and the large import appetite.

People started losing jobs, poverty increased, and many bad economic things began to happen.

To support its budget, the federal government started borrowing from banks and creating money arbitrarily. Meanwhile, to meet its foreign exchange demands, the FG also started drawing from our foreign reserves.

But when the government needs dollars, and “ordinary” Nigerians also needs dollars, only one group of people will get and another group won’t — the government or people who are in government will have priority access to scare foreign currency before anyone else.

And so there was dollar (forex) scarcity. Again, going by the logic that once a product is scarce, its price skyrockets, the price of the dollar increased, or it was supposed to. But it didn’t.

The government did not allow the price of the naira to fall to the dollar, and it kept trying to support the naira by using dollars from our foreign reserves to support the forex market by pegging the naira to the dollar exchange rate at 99 cents to one dollar.

Of course, this wasn’t optimal because it meant the foreign exchange market was not working properly.

Somebody - in this case, the government - was using outside influence to prop up the naira by supplying dollars to the forex market, and it only meant that few people could access dollars to import and pay for foreign things.

In other words, the general price level of things skyrocketed, aka inflation.

The oil price crashed again in 1986, and the IBB government finally woke up to the reality of the situation by introducing a Structural Adjustment Program (SAP).

Through the SAP, the government created something called a “Second-Tier Foreign Exchange Market (SFEM)” where ordinary Nigerians could finally buy and sell forex without competition with the government’s own forex needs of debt repayment and public service importation.

But of course, the forex market never fully operated as it should. The government’s forex market kept being subsidised while the naira was being pounded in the SFEM market because of Nigeria’s economic crises.

Worse, as the government imposed tougher restrictions for access to forex and Nigeria’s economy didn’t get better, the Bureau De Change system introduced in 1989 meant that “black market” and fraudulent practices in the forex market only continued.

By 1993, under Abacha’s regime, the “official” rate of the naira to the dollar was ₦ 22/dollar, but in the black market, naira to the dollar was as high as ₦80/dollar.

The arbitrary nature of Nigeria’s forex system has led Feyi Fawehinmi to conclude:

“Since 1986, the Nigerian naira’s relationship with the US dollar (and other foreign currencies) has been erratic, (un)predictable, violent and full of heartbreak and tears. The built-in dysfunction has also made a lot of people very rich”.

It has also made many Nigerians poor, I suppose. Tell me, how much does the naira exchange to the dollar today, in May 2021?

AbokiFX says ₦483/dollar.

[Read: The Danger of a Single Product]

Avengers: Age of Cryptos

The story of the continuous devaluation of the Naira, while it is uniquely Nigerian, is also not Nigerian. Many people in many other countries are also angry at their national currencies and their national financial institutions.

Why is why when an anonymous individual by the name “Satoshi Nakamoto” wrote on the evening of Saturday 1, November 2008 that “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted party”, he was speaking for a lot of people.

The way Satoshi’s new currency worked was fairly simple, or it was supposed to be. He³ proposed an electronic payment system based on “cryptographic proof” that allowed two parties to transact directly without the need for a third party.

The “third party” he was referring to was banks, and he was proposing money that does not involve financial institutions.

And you should know why people were optimistic about the new currency — because banks and financial institutions have always been the reason why currencies are unstable.

For instance, when Nigeria’s naira started falling to the dollar, instead of fixing its economy and strengthening the currency, it started trying to prop it up arbitrarily.

In bitcoin’s case, the advantages of the new electronic payment system over traditional payment systems were many, some of which include:

1. the system was controlled by many nodes (or developers) — unlike national currencies that are controlled through force by central banks;

2. every transaction is displayed on an ongoing chain via a timestamp in a proof-of-work system that cannot be changed;

3. only 21 million bitcoins can ever be mined — which helps its scarcity and means more of it cannot be created in a financial crisis like central banks do;

4. You have to “mine” a bitcoin by solving a computational problem instead of creating it arbitrarily as central banks do with traditional currencies.

Doge and Shiba Inu To The Rescue

As you can see, theoretically, bitcoin and other cryptocurrencies have been proposed as a better version of traditional currencies, especially for online transactions.

Of course, this doesn’t mean that they don’t have their downsides. For instance, the fact that nobody controls it means it is prone to be easily influenced.

Which is why if someone like Elon Musk, who just bought $1.5 billion worth of bitcoin, tweets or says anything about bitcoin, the currency accelerates or decelerates.

In other words, bitcoin is extra sensitive to anything because bitcoin investors are not sure of where the currency is headed. Nobody is.

But bitcoin is still is a net positive investment for Nigerians, I believe.

I mean, if the naira was 90 kobo to one dollar in 1980 and it now sells for ₦483 to one dollar in 2021, the average person will hedge their bets with any other alternative. In this case, bitcoin, ethereum, dogecoin, and so many others.

But what if I told you bitcoin is not a currency but just a store of value? Well, that’s an argument for another day. For today, let’s hope the only thing that falls is a ₦70 egg, not naira or the price of bitcoin.

(Wait, an egg is now ₦70? Oh God, I hate naira!!!!!!!!!)

— NC

With privilege,

Doyin Olagunju

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Credits and Yarns

I need moneynnnnnnn. If you enjoyed this piece and will like to send me money, you can reply to this email by requesting my Abeg contact.

Also, Governor Ben Ayade of Cross River State is now in the APC, and I can see the PDP blushing now that he has left. Me? I’m howling.

Morris Monye💙 @Morris_Monye

This was when I knew Ayade was unstable. His move to APC is not surprising.

Lastly, please share National Cake and follow us (I mean follow my burner account) on Twitter. If you can’t send me money, can’t share the newsletter and can’t follow National Cake on Twitter, then why are you really here?

1. To “blow” in Nigeria is a slang word for when a person succeeds. e.g “Tony don blow” - Tony has succeeded.

2. A slang word in Nigeria for an expensive lifestyle.

3. No one has identified themself as Satoshi Nakamoto, till today. “He” here is a presumptive pronoun as Satoshi Nakamoto could be male, female, non-binary or a group of people.