CBN REPORTS RISE IN CURRENCY IN CIRCULATION

The Central Bank of Nigeria (CBN) reported a rise in the total amount of naira in circulation. This increase is interesting because it comes alongside a significant rise in the amount of cash people are holding outside of banks.

Key Points:

• Total currency in circulation reached N3.87 trillion by March 2024.
• Over 90% of this cash is held outside the banking system, suggesting Nigerians are keeping more physical money.
• The CBN is concerned about this high level of “currency outside banks” because it can contribute to inflation.

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What’s Driving the Cash Hold Up?

The reasons behind Nigerians holding more cash are not entirely clear, but the recent currency redesign policy might have played a role. In January 2024, during the peak of the policy, the percentage of cash outside banks was only 57%. This figure jumped to a staggering 85.8% by March.

CBN’s Response to Inflation

The CBN acknowledges that rising food prices are a major factor in inflation. While they can’t directly control these prices, they are focusing on managing monetary factors that contribute to inflation. This includes controlling the money supply, exchange rate fluctuations, and – you guessed it – the amount of cash outside banks. The CBN believes that by addressing these factors, they can significantly reduce inflationary pressures.

Looking Ahead

It will be interesting to see how the CBN’s strategies impact inflation and how Nigerians adjust their cash-holding habits. This trend of holding more physical money is a unique situation, and the CBN’s efforts to manage it could have significant economic consequences.