In a surprising turn of events, the amount of currency in circulation (CIC) in Nigeria has witnessed a staggering increase of approximately N890 billion between September 2023 and December 2023.
Recent data released by the Central Bank of Nigeria (CBN) reveals that CIC reached a remarkable N3.65 trillion in December 2023, marking a significant leap from the N2.76 trillion recorded in September 2023, coinciding with the assumption of office by CBN governor Cardoso.
This rapid surge, equivalent to a 32 per cent increase, occurred amid renewed challenges of naira scarcity faced by Nigerians, despite the Central Bank’s reassurances regarding an ample cash supply.
However, an intriguing aspect brought to light by the CBN data is that a substantial 94 per cent of the currency in circulation is being held outside the banking system as of December 2023.
The data further indicates a substantial 42 per cent surge in cash outside banks, reaching N3.43 trillion from N2.42 trillion in September 2023.
The prevalence of non-bank-held cash has raised concerns over the adequacy of currency within the formal banking system. Reports of widespread cash shortages at banks, ATMs, Points of Sale, and Bureaux de Change (BDCs) across major Nigerian cities have strained the nation’s financial institutions, resulting in operational challenges.
In response to these challenges, the CBN issued statements in November 2023, attributing the cash scarcity to hoarding and urging citizens against panic withdrawals.
The central bank had earlier implemented a policy to redesign and introduce new Naira notes, leading to a reduction in currency supply from N3.29 trillion in October 2022 to N1.38 trillion by January 2023.
However, with a change in leadership at the apex bank, there seems to be a shift in policy, allowing more cash to circulate.
In a bid to address concerns surrounding the legal tender status of old Naira notes, the CBN recently removed the December 31, 2023 deadline, potentially signaling an end to the cash scarcity crisis experienced earlier in the year.
Despite these measures, questions linger about the potential impact of the surge in circulating currency and money supply on the CBN’s efforts to curb inflation, which spiked to 28.92 per cent in December 2023.
The observed trend of hoarding cash outside banks points towards a deeper behavioral pattern among Nigerians, raising broader questions about the effectiveness of the CBN’s strategies in managing the money supply and ensuring stability in the nation’s financial system.
