For the average 18 to 35-year-old Nigerian, the words “Bretton Woods” probably don’t mean much. However, every time they’re charged for ATM withdrawals or incur fees for international money transfers, these two words are a stark reminder that Nigeria’s financial system was not designed with them in mind.
The current financial system that underpins the Nigerian economy was created at the 1944 Bretton Woods conference held in the USA. This conference created the financial system we use today, establishing the rules that govern the global economy. It created a new way of managing and exchanging value between individuals and organisations primarily based on the needs of developed countries and markets. And in case you were wondering, there were no Nigerians at the table.
According to Luno’s recent Future of Money report, Nigerians between the ages of 18 and 35 want a new deal from the global financial system. When asked how they felt about their current financial situation, only 39 percent of Nigerians between 18 and 35 said they felt secure – the lowest of all the countries surveyed.
Google Trends data also revealed that Nigerians record the highest number of Google searches for Bitcoin in the world. As much as this highlights the curiosity of a young, tech-savvy generation, a deeper look at this statistic speaks to a desire for change.
Of the seven countries profiled in the Future of Money report, Nigerians were the most conscious of the fees they paid on card transactions and mobile banking. Ninety percent of Nigerians were aware of credit and debit card fees compared to 51 percent of their peers in the UK and 77 percent in France. While cash is still king in Nigeria, digital transactions are fast becoming the default method of payment for most young people (thanks to convenience, speed and other advantages) but excessive fees are not helping the much-needed transition.
Cheaper means of exchange
Cryptocurrencies, however, are starting to offer Nigerians an alternative. Take cross-border payments, for example, which can be so slow and expensive with traditional banks. In some cases, it is much easier and cheaper to take physical cash on an aeroplane and give it to the recipient than to make a bank transfer. With cryptocurrencies, users have a secure, instant and nearly free option for cross-border financial transactions.
The Future of Money report also revealed that 3 out of 5 Nigerians don’t believe the value of the Naira will increase over the next 12 months. Nigeria’s dependency on its oil sector has always left the Naira vulnerable to price fluctuations. If you ask Nigerians whether they prefer to work with the US Dollar (USD) or Naira, they often select the former due to its stability.
There is still a desire to avoid the charges that come with using a foreign currency. Stablecoins, which are cryptocurrencies pegged to stable assets such as gold and more stable fiat currencies like the US Dollar, offer the best of both worlds. They offer the low volatility that comes with familiar stable assets as well as the low transaction fees associated with using local currency.
Over the last few decades, the value destruction of currency fluctuations to Nigeria has been billions, if not trillions, of dollars. However, with stablecoins, the next generation of Nigerians are being presented with an opportunity to write a different story.
Cryptocurrencies are yet to achieve mainstream adoption in Nigeria but that hasn’t stopped early adopters from trying to get their hands on it and explore the different use cases offered. For example, Bitcoin mirrors the characteristics of one of the world’s most valuable assets – gold. It has also proved to be a profitable investment for many people across the world.
In general, cryptocurrencies, are rare assets that have the potential to increase in value. They are also malleable and can be broken down into smaller units without losing their value. Cryptocurrencies are almost impossible to counterfeit, which make them a very desirable asset to own for long term investment.
However, as with any new asset class, there will always be a higher level of volatility compared with traditional trading. The good thing is that as the benefits become clear, especially to developing markets disadvantaged by traditional financial systems, the more people and businesses will hold the coins for their utility value. This will, in turn, reduce speculation and volatility.
A new world?
Although Nigeria didn’t have a seat at the table when the current financial system was being constructed in 1944, the next generation is eager to take back control of its future. With the open and decentralised nature of cryptocurrencies, there’s an understanding that Nigerians don’t have to be left behind in the global economy over the next century.
There is undoubtedly a bubble of interest around cryptocurrencies in Nigeria, but with the option of cheaper money transfers, greater currency stability and new investment opportunities, it will not be too long before this so-called bubble becomes commonplace in Nigeria.
About the author:
Marius Reitz is the General Manager for Africa at Luno, a company facilitating cryptocurrency transactions. Marius is a Chartered Management Accountant and holds an Honours degree in Management Accounting from the University of Stellenbosch. He joined Luno in 2016 and helped the company grow from a team of 8 to a diverse global team of 230 people.