May 2024 Sees a New All-Time High of N3.71 Trillion in Currency Outside of Banks

In May 2024, the total quantity of money outside of Nigeria’s banking system rose to an all-time high of N3.71 trillion.

This is based on information from the Central Bank of Nigeria’s (CBN) credit and monetary statistics.

The new high indicates either a rise in the inclination for cash transactions or a declining trust in the financial system.

What does the data indicate?

In May 2024, the amount of cash outside banks increased by N104.89 billion over the previous month, representing a 3% month-on-month growth. 

With data climbing from N3.28 trillion in January 2024 to N3.41 trillion in February and then to N3.63 trillion in March before a minor decline to N3.61 trillion in April, this upswing is consistent with the trend observed over the previous several months.

The Y-o-Y statistic is even more startling; it has increased by N1.53 trillion, or 70%, since May 2023, when it was only N2.18 trillion.

93.56% of the cash in circulation is outside banks

Roughly 93.56% of all money in circulation as of May 2024 was not in the banking industry. It was roughly 86.16% in the same month the previous year. The large proportion suggests that there is a strong preference to keep cash outside of banks.  

The widespread cash scarcity that Nigerians faced in 2023 can be connected to the cash-hoarding tendency that was shown in 2024. The CBN’s poor execution of a currency redesign programme, which was a component of a larger effort to move towards a paperless economy and address problems like vote-buying and financial crimes, was largely to blame for this scarcity.

Many Nigerians had trouble getting cash in 2023, which caused a lot of economic disruption and eroded public confidence in the banking sector. People began hoarding cash as a result of this loss of faith and their concern that old naira notes would no longer be accepted as legal tender.

People became more reluctant to deposit their money in banks as a result of the severe cash shortages, which encouraged a cash-only mindset.

As indicated by the startling 93.56% of cash in circulation held outside of banks by May of 2024, this tendency persisted.

According to additional CBN data, the amount of money in circulation increased from N3.92 trillion in April to N3.97 trillion in May of the same year, a gain of 1.07%.

On an annual basis, the growth is greater, increasing by 56.94% from N2.53 trillion in May 2023, as the Nigerian economy continues to require cash.

Things To Note

The ongoing rise in cash outside of banks may have a number of effects on the Nigerian economy. It indicates an increasing inclination towards cash transactions rather than computerised payments, which could be brought on by a desire for more material wealth in an uncertain economic climate or worries about the stability of banks.  

Furthermore, since greater amounts of cash in circulation outside the banking system can lessen the central bank’s influence over the money supply, this development may have an effect on inflation rates and the efficacy of monetary policy.

The money supply (M3) in Nigeria increased to about N100 trillion, reaching a new high of N99.24 trillion in May 2024, according to a previous study by The News Chronicles. The previous month’s N96.97 trillion saw a 2% month-over-month (M-o-M) increase, while the same month last year had a 78% year-over-year (Y-o-Y) expansion from N55.69 trillion. Nairametrics also noted that the May 2024 spike in M3 was driven by an increase in net domestic assets.

The Monetary Policy Committee’s (MPC) strict actions to limit inflation are in opposition to this growth.  

An increase in the amount of money in circulation and the money supply can lead to more consumer spending, which in turn increases demand for products and services and stimulates the economy.

But a large expansion in the money supply could also contribute to inflation. Prices typically increase when the same number of goods and services are sought after by more money.

If the rise in money supply is not accompanied by a matching boost in production, Nigeria, which has been experiencing inflationary pressures (headline inflation is now at 33.95%), may see additional increases in inflation rates. This can increase living expenses and reduce buying power, especially for lower-class households.