August 2, 2024/CSL Research
Money Supply statistics from the Central Bank of Nigeria (CBN) as of June 2024 revealed that currency in circulation (CIC) grew by 56% in June 2024 to reach an all-time high of N4.05trn from N2.6trn (June 2023). Month-on-month, there was a marginal increase of 2.1% from a high of N3.97trn in May 2024. In the same vein, currency outside banks (COB) grew by 67% y/y to N3.79trn in June 2024 from N2.26trn (June 2023). This implies 93.62% of the currency in circulation (CIC) was outside the banking system as of June 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 an average of 84.56% between 1960 and June 2024.
The Naira redesign initially showed promise in reducing the currency outside banks, evidenced by a significant drop within the first four months of its implementation. However, after the reversal of the project, the currency in circulation (CIC) grew by 163.51% (N2.27 trillion) between January and December 2023. This increase was due to the printing of new currency and the reinjection of old notes previously withdrawn by the Central Bank of Nigeria (CBN). During the same period, currency outside banks (COB) surged, as non-bank-held cash increased, particularly among wealthy individuals. This surge was driven by public concern over the ability to obtain cash from banks following the cash crunch caused by the Naira redesign.
Reducing substantial cash holdings outside the banking system is crucial for enhancing monetary policy effectiveness, combating illicit activities, and supporting economic stability. However, the reversal of the redesign policy and diminished public trust make reenacting such a policy challenging. Furthermore, an increase in currency in circulation without a corresponding rise in consumer spending can lead to inflation, economic instability, erosion of savings, loss of confidence, income inequality, and pressures on interest rates.
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