Nigeria’s economy is witnessing an unprecedented surge in the currency in circulation (CIC), which reached an all-time high of N4.05 trillion in June 2024, according to the latest data from the Central Bank of Nigeria (CBN). This represents a significant 56% increase from N2.6 trillion in the same month last year, marking the first time Nigeria’s CIC has exceeded the N4 trillion mark.
The CIC comprises the currency outside the banking system and the vault cash of banks. This surge has been particularly notable, with a month-on-month (MoM) growth rate of 2%, from N3.65 trillion recorded in May 2024. Notably, about 94% of the currency in circulation is reportedly outside the banking system, as cash outside banks hit a new high of N3.79 trillion. The currency outside banks has more than quadrupled over the past year, a situation attributed to the growing PoS operations.
What the Data is Saying
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The data from the CBN provides a comprehensive overview of the trend:
In January 2024, Nigeria’s currency in circulation was N3.65 trillion, a 163% increase from N1.39 trillion in January 2023. The currency outside banks similarly increased by 314%, from N792.18 billion in January 2023 to N3.28 trillion in January 2024.
February 2024 saw a continuation of this trend, with currency in circulation climbing by 276% to N3.69 trillion, compared to N982.1 billion in February of the previous year. The currency outside banks reached N3.41 trillion, a 304.7% rise from N843.31 billion in February 2023.
In March 2024, the currency in circulation rose to N3.87 trillion, up from N1.68 trillion in the same month of 2023, indicating a year-on-year growth of 129.8%. The currency outside banks increased to N3.63 trillion from N1.45 trillion in March 2023, a 151.1% rise.
The trend continued into April 2024, with the currency in circulation increasing to N3.92 trillion, a 64.9% year-on-year rise from N2.38 trillion in April 2023. The currency outside banks also saw an increase, reaching N3.61 trillion from N2.08 trillion the previous year, a 73.4% growth.
May 2024 followed suit with the currency in circulation reaching N3.97 trillion, a 56.9% increase from N2.53 trillion in the previous year. The currency outside banks rose to N3.71 trillion from N2.18 trillion in May 2023, marking a 70.4% growth.
June 2024 marked a historic milestone as the currency in circulation surpassed N4 trillion for the first time, reaching N4.05 trillion. The currency outside banks also saw an increase, reaching a new high of N3.79 trillion from N2.26 trillion in the same month of the previous year, representing a 67.5% rise.
These figures highlight the continued expansion in liquidity and a shift in the cash circulation method.
Economists Raise Alarms Over PoS Operations and Cash Hoarding
Financial experts have expressed deep concerns over this rising trend of cash hoarding, which is largely attributed to the proliferation of Point-of-Sale (PoS) services. While these services have made financial transactions more accessible, especially in remote and underserved areas, they have also led to a significant portion of the country’s cash flow being held outside traditional banking systems.
The convenience of PoS transactions has inadvertently contributed to the growing issue of empty ATMs, forcing more people to withdraw cash from these terminals rather than banks.
“POS can’t take over function of cash deposits and withdrawal from licensed commercial and microfinance banks. Come on!! Is this even a debate? Are we so debased in expectations of service that licensed trillion naira banks with billions of naira investment in retail branches and ATMs have no cash but a chap with an umbrella down the street has cash?” Economist, Kalu Aja, lamented.
Compounding The Inflationary Pressures
The implications of this cash hoarding have become concerning especially as Nigeria’s ongoing battle with inflation intensifies. The headline inflation rate soared from 33.95% in May 2024 to 34.19% in June, a stark increase from the 22.79% rate recorded in June 2023. The month-on-month increase of 0.17 percentage points from May 2024’s 2.14% rate to June’s 2.31% highlights the persistent upward pressure on prices.
Against this backdrop, economists warn that the high levels of currency in circulation, particularly outside the banking system, could see inflationary pressures thickening in the coming months. This situation is especially concerning given the current economic conditions, where the Monetary Policy Committee (MPC) has been increasing the MPR as part of measures aimed at controlling inflation.
With inflationary pressures gaining momentum, analysts warn that Nigeria may see a further increase in inflation rates if the growth in money supply is not matched by a corresponding increase in production. This, they warn, will further erode purchasing power and impact the cost of living, particularly for lower-income households.
There are growing calls for strategic policy responses as the economic headwinds escalate. Financial experts suggest that addressing the root causes of cash hoarding and improving the efficiency of cash flow within the economy are crucial steps. This includes enhancing the infrastructure and reliability of traditional banking services, as well as promoting digital financial inclusion to reduce the reliance on physical cash.