May 2, 2023/CSL Research
Money Supply statistics from the Central Bank of Nigeria (CBN) as of March 2023 showed that currency in circulation increased month-on-month by 71.42% to N1.68trn from N982.09bnbn as of February 2023. On the other hand, currency outside banks rose month-on-month by 71.4% to N1.45trn
(representing 85.86% of currency in circulation) as of March 2023 from N843.31bn (representing 85.87% of Currency in Circulation) in February 2023. Between January and December 2022, currency in circulation declined by 8.39% (N275.97bn) while currency outside banks declined by 7.66% (N213bn).
We had earlier noted that currency outside the banks has averaged c.84.36% of currency in circulation since the year 1960; the lowest being 57.14% in January 2023 and highest being 94.78% in March 1995.
The challenge of having a high proportion of currency in circulation outside the banking system has remained since independence despite previous currency redesigns and printing. However, the CBN Governor’s recent unrelenting efforts at mopping Naira outside the banking system met with wide criticisms given the circumstances. We reiterate however that the objectives of reducing the significant amount of cash outside the banking system to ensure monetary policy effectiveness, curtail criminal activities and promote financial inclusion amongst others are strongly desirable. That said, we believe the timing and implementation process were flawed particularly with regards to the availability of the new notes.
During the peak of the Naira scarcity, Nigerians paid as much as 25% of needed cash at PoS terminals to get money and ATM machines only dispensed minimal cash and had very long queues. Also, the electronic banking channels had increased transaction failures particularly at the PoS terminals. For context, the currency in circulation reduced by 48.97% between October 2022 (when the naira redesign deadline was issued) and March 2023 i.e., from N3.3trn to N1.68trn. However, percentage of currency outside banks to currency in circulation in October 2022 and March 2023 were 86% and 85.86% respectively, a marginal reduction of 0.14%, which suggests the initiative has not really achieved the expected objective.
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