Comment by dayve | Hacker News Reader

Comment by dayve | Hacker News Reader

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Wise used to be a great option to transact in, 2-3 years ago. The main challenge with Wise however was the exchange rate used to convert USD received to the local fiat currency. In Nigeria there are two exchange rates - the first at an official rate used by banks, & the second a parallel rate used by the black market (including Bureau de Change operators).

Today if you Google the ‘official’ exchange rate for the dollar to Naira, you’ll see a ~445 Naira to 1 USD. As an individual there isn’t anywhere I can buy dollar at this rate, because it is exclusive to banks, select licensed money operators & politically connected high-net worth individuals. However money services like Wise convert my dollar at this official rate. Considering that the parallel market rate today is 745 naira to 1USD, I will be losing a huge amount of money by receiving money with Wise. The only workaround will be to get a virtual account on Wise & send USD to a local money merchant, who then exchanged at this parallel rate. But such virtual accounts aren’t accessible to people in Nigeria, due to regulation. [1] For context, the Central bank of Nigeria released a circular a while back explicitly stating Wise as a non-licensed entity.

There are other options apart from Wise. But the trade off is loss of money, as compared to what’s available on the parallel/black market.

[1] https://www.reuters.com/article/nigeria-money-idAFL1N2IX1BM

Thank you for the detailed education of the issues specific to Nigeria! But I'm still curious - can you explain how crypto transfers aren't subject to the same issues getting to Naira, the traditional banking system, etc? Getting solid data on the adoption of crypto for real day-to-day payments in Nigeria (or anywhere) is pretty difficult.

Genuinely curious.

Crypto transfers aren't subject to these issues because they aren't regulated. For instance, cards (Visa, Mastercard & Verve) can't be used to deposit on these exchanges because they'll have to be processed by a fiat operator, which usually requires a license. Because the government has banned the use of crypto, any entity caught wanting will have their accounts frozen. This also makes it really hard to deposit money into these entities by anyone. They can easily be blacklisted because they have accounts in their names. I used to work for one of such entities. I've also had my bank account frozen by the Central Bank of Nigeria for withdrawing naira that was sent from said 'blacklisted' entities.

Because these crypto exchanges are P2P based (e.g. Binance P2P), I can exchange my USDC for Naira that's deposited directly to my account. Because these are individuals, it's hard for the government to isolate bank transfers that are made for the purpose of crypto. For caution, people making such transfers tell each other not to add a description with a crypto-related word to these transactions.

Adoption for real day-to-day payments in low-volumes (like paying for groceries at a shop) is quite low, but high among high-volume merchants who import/export goods and are in dire need of USD liquidity and ease of payment across countries. Tough Central Bank policies give them an incentive to find the best rates & transact with lesser barriers. There are no official figures/solid data, because all that activity happens in informal channels (like P2P).

I don't understand though how do you explain those transaction to your tax authorities and pay taxes. Surely it can only be so long that you can get massive (by local standards) and fairly constant salary month to month and not get them interested in the source of funds?

I have family in developing countries but not Nigeria. Usually there's massive tax fraud that happens all the time regardless. Prevailing tax rates are punitive enough that nobody follows them and they're rarely enforced so there's elaborate reporting schemes that large portions of the moneyed population follow and is essentially accepted practice.

Yes, this is the case for Nigeria. Taxes mostly come from working individuals, which are deducted by the company before the net salary payment is sent. They also come from transactions. Companies are accountable to the government, but rarely individuals. Foreign companies with remote workers in Nigeria have to either pay to a USD account or pay via crypto. Crypto is untaxed because it is banned. USD in a bank account is subject to withdrawal limits & must be exchanged at the bank’s rate, which often 40-50% less than the parallel/black market rate. Crypto (USDC/USDT) is the only way to get the true Naira equivalent of the dollar. But it’s the most convenient way to receive payments & individuals get no tax-related penalties for it today.

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