October 27, 2023/CSL Research
Money Supply statistics from the Central Bank of Nigeria (CBN) for September 2023 showed that currency in circulation (CIC) increased month-on-month by 3.8% in September to N2.76trn (highest this year) from N2.66trn as of August 2023. In same vein, currency outside banks (COB) rose month-on-month by 2.38% to N2.35trn (representing 85.1% of currency in circulation) as of September 2023 from N2.30trn (representing 86.3% of Currency in Circulation) in August 2023. Between January and September 2023, currency in circulation has risen by 99.17% (N1.37trn) while currency outside banks surged by 196.61% (N1.56trn). This, however, can be attributed to the reinjection of older Naira notes, which had been previously withdrawn from circulation by the CBN, back into the system.
The persistent challenge of a substantial portion of currency in circulation outside the banking system has remained since independence, despite past currency redesigns and printing. The former Central Bank Governor’s efforts to withdraw currency from circulation outside the banking system faced considerable criticism, given the circumstances. Nevertheless, we emphasize the importance of the overarching goal of reducing the substantial cash held outside the banking system for the purpose of enhancing monetary policy efficacy, combating illicit activities, and fostering financial inclusion, among other objectives. Reducing cash outside the banking system also aids in mitigating money laundering when implemented in collaboration with appropriate agencies such as the EFCC and banks. enabling the identification of suspicious transactions as cash flows in and out of the system.
From reported numbers, we can conclude that the Naira redesign policy would have been moderately successful in mopping up currency outside circulation if it wasn’t halted. The currency in circulation reduced by 138% between October 2022 (when the Naira redesign deadline was announced) and January 2023 i.e., from N3.30trn to N1.39trn. Also, percentage of currency outside banks to currency in circulation in October 2022 and January 2023 were 86% and 57.14% respectively, a considerable reduction.
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CSL Nigeria Daily – 27 October – Money Supply.pdf
