A stablecoin is a cryptocurrency backed by reserves.
If I create eKalu currency it's worthless 😭. if I create eKalu currency backed by $, it's the same as $.
These Nigerian currency notes was backed by gold, you take note to CBN & redeem for gold worth £1 and 5 shillings.
This was the same in other nations.
US Dollar was also backed by gold.
Hence you see "will pay to bearer on demand" $5 in gold
In 1971, Nixon removed the $ from direct convertability. The Dollar was now backed by "full faith"....no "promise" to convert to gold
In 1973, Nigeria changed her currency from £ to Naira.
The "promise to pay" is also gone.
Naira is now backed by "full faith"
What's full faith? Crude oil, Cocoa, Rubber, exports.
The eNaira is pegged to the Naira.
It's not peged to the $ or gold.
This means it's not a stablecoin, but a digital coin built on the block chain open ledger.
To be a stablecoin, the CBN needs to allocate reserves, which it does not have.
So I see an opportunity.
UBA has a US banking license.
UBA can create a $ blocked accout in US and issue eUBA in Lagos, backed by those $ in New York. eUBA can be used to open LC. US depositing persons share fees with UBA or any issuing authority.
Anyone that can legally collect, and lockup $ in US can also issue local US cash-backed Cash.
The local eCash can only grow based on US dollars backing it, in effect a dollar peg.
If Emeka remits cash from US, cash sits in US, but local eCash created, which is the same as a $.
The local $ backed eCash will have rates that are market driven, and will relieve the pressure on CBN, but CBN will lose its ability to drive rates or "save the Naira".
So it's a choice between supply at market prices and control.
Remember, more supply means prices fall.
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In May 1998, The Government of Pakistan froze all foreign currency accounts (FCA) estimated to hold $7.56b in an emergency action declared to protect the economy.
The Government of Pakistan instructed banks to pay Pakistanis receiving $ salaries from offshore companies in local currency at inter-bank rates. All dollar assets were converted to the local currency.
The effect of these actions was devastating to the economy of Pakistan.
The primary impact was a loss of confidence in Pakistan's Government, which was evident in many ways, including private sector remittances stopping completely, with Pakistan losing $2.5b in remittances projected inflow for that year.
1. Nigeria needs forex to settle her FX obligations including an outstanding obligation of over $7b; thus, the NNPC arranged a $3.3b emergency loan from AFRIEXIMBANK (AFEX) on behalf of the Federal Government of Nigeria.
2. The loan structure involves the NNPC Limited receiving cash today via an SPV called Project Gazelle Funding Limited, sponsored by the NNPC Limited. The NNPC promises to repay AFEX with crude oil, equivalent to the principal borrowed plus an interest element of 11.85% APY.
3. The NNPC Limited borrowing is backed by its future sales of crude oil.
Let us talk about inflation and my small town in a Local Government Area called Ohafia in Abia State.
My Town In Ohafia
In my town, there is one big shop. It's got everything: groceries and also a fridge. In the evenings, locals gather for a cold beer in front of the shop.
It's the "mall", the centre of entertainment.
In regular times, prices in that shop reflect prices in Nigeria with a bit of margin for the cost of transportation. My town is an agrarian community with little disposable income.
The shop owner knows that prices cannot be sky-high because the residents can't afford to spend large sums on imported luxuries. The shop sells local palm wine and Nigerian beer, no foreign brands; why?
1. Local refining will reduce the cost of local PMS. FALSE. PMS pricing is based primarily on the cost of crude priced in $, not the cost of refining
2. Currency float will make $ flow in. FALSE. A float is a necessary but not sufficient measure to attract $ inflow
3. A strong currency translates to a strong economy. FALSE. A Strong currency means exports from that county are not competitive. Exports boost GDP and a weak currency makes exports competitive.
South Korea and Japan have weak currencies
4. Imports are bad. FALSE.
The largest importer on earth is China, largest exporter on earth is China. What boosts GDP is net exports. Nations can import goods they have no comparative advantage in and export goods they have a comparative advantage in, just export more