March 1, 2024/CSL Research

Money Supply statistics from the Central Bank of Nigeria (CBN) as of January 2024 revealed that currency in circulation (CIC) surged by 163% in January 2024 to N3.651trn from N1.39trn (January 2023). Month-on-month, there was a marginal 0.1% decline from the historical high of N3.653trn in December 2023. In the same vein, currency outside banks (COB) grew by 314% to N3.28trn in January 2024 from N0.79trn (January 2023). This implies 89.86% of the currency in circulation (CIC) was outside the banking system as of January 2024, marking a notable rise from the 57.14% recorded in January 2023 following a few months of the CBN’s Naira redesign. COB marked its all-time high at 94% in December 2023 and makes up c.84.46% on average of currency in circulation between 1960 and January 2024. 

From reported numbers, it’s safe to conclude that the Naira redesign would have been moderately successful in mopping up currency outside the banks if it wasn’t reversed, as there was a considerable reduction in the currency outside the banks in the first four months of its implementation. Between January and December 2023, currency in circulation (CIC) grew by 163.51% (N2.27trn) and this can be attributed to printing of new currency and the reinjection of the old Naira notes into the system, which had been previously withdrawn from circulation by the CBN. In the same period, currency outside banks (COB) has surged by 333.48% (N2.64trn) on the back of rising non-bank held cash especially among the wealthy individuals, amidst growing public concern over the sufficiency of currency in the banking system. 

The longstanding issue of a significant amount of currency circulating outside the banking system has persisted for a long time in the country’s history. It is crucial to underscore the importance of curtailing the substantial cash holdings outside the banking system to enhance the effectiveness of monetary policy and promote financial inclusion, among other objectives especially in periods like this, when the CBN is relying on monetary policy to curb high inflation and save a depreciating currency. The reduction of cash outside the banking system not only supports these policy goals but also plays a vital role in combating illicit activities such as terrorism and money laundering. Collaborative efforts with relevant agencies, such as the EFCC and banks, are essential for successful implementation and enforcement. By tackling this challenge, the financial system can contribute to broader economic stability and security objectives