The Central Bank of Nigeria (CBN)’s Money and Credit Statistics data say that currency in circulation stood at N1.6 trillion in March 2023, the highest since January this year.
Out of this amount, N1.4 trillion is outside the banking system, representing 88 percent of the total..
The CBN redesigned the naira recently, but this created confusion and uncertainty as it led to cash shortages.
Supreme Court orders forced the government and the CBN to rescind the decision, re-introducing old naira notes to cushion the effect of the unavailability of newly redesigned ones.
The CBN hinged its naira redesign policy on the need to tame inflation, corruption, and kidnapping.
Its naira redesign policy led to frustrations as businesses and households struggled to access cash to make daily transactions.
Currency outside banks increases to 87.5%
Out of the N1.6 trillion currency in circulation, N1.4 trillion representing 87.5 percent of the total currency is outside the financial system. This means they are unbanked.
About 85.8 percent was outside the banks in February 2023, according to the CBN data.
One of the claims of the CBN is that its naira redesign or cashless policy was aimed at keeping money in banks.
Nigerians encountered challenges with the apex bank policy, with failed transactions, poor network and lack of cash dotting the country’s landscape between January and March.
The CBN governor, Godwin Emefiele, apologised to Nigerians over failed online transactions. However, many Nigerians may not easily forgive him.
Is cash outside the banks a problem?
The CBN thinks having much cash out of the banking system is a problem.
At the 57th Annual Bankers Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos in December 2022, Emefiele had said, “Analysis of the key challenges primarily indicated a significant hoarding of bank notes as over 85 percent of currency in circulation were held outside the banking system. This is even as currency in circulation more than doubled from N1.46 trillion in December 2015 to N3.23 trillion in September 2022, a worrisome trend that must be curbed.”
The CBN helmsman had noted that several inflential Nigerians were hoarding the local currency, stating that it was an unhealthy situation.
The apex bank believes that having a lot of cash outside the financial system is distortion its capacity to manage the monetary system.
However, economist and Chief Executive Officer of Centre of the Promotion of Private Enterprise, Dr Muda Yusuf, said it was not a problem as money was supposed to be outside the banks, not inside.
“Currency notes are meant to be largely outside the banks, not in the banks. Cash is a medium of exchange to be used by citizens, not to be stored in the banks. There is nothing unusual if 85 percent of cash is outside the banking system; just as cheque books or ATM cards are supposed be largely in the hands of bank customers,” he said.
“It is therefore a gross misrepresentation to give the impression that 85 percent of money is outside the banking system. Currency is only 5 percent of money in the economy and should therefore not warrant the scale of energy and resources being dissipated around it. The focus of monetary authorities should be on regulating money supply, not on mopping up currency notes,” he added.
An economist, Dr Dan Okolo, said having a lot of cash could pose a problem for the central bank.
“It makes monitoring and management of currencies difficult. The CBN needs to trace where the money it circulates goes to. However, what I do not want to buy is that there is too much currency in circulation. That is where I disagree with the CBN,’ he said.
Cashless policy?
A policy expert, Ronke Onadeko, told Dataphyte that Nigeria needed more time to be ready for a cashless policy.
She explained that a lot must be done to ensure efficient internet infrastructure across the country before thinking of the policy, noting that the onus was on the government to set penetrative targets and ensure the targets were incentivised to back up the policy.
She said, “Citizen sensitisation is necessary before policies are implemented, but it hasn’t happened yet,” she stated.