Market News

The latest data from the Central Bank of Nigeria (CBN) reveals a significant year-on-year (YoY) increase in the amount of currency outside the banking system, highlighting a shift in public behaviour regarding cash retention.

According to the CBN’s Money and Credit Statistics, currency outside banks surged by 66.2% in September 2024, reaching N4.02 trillion compared to N2.42 trillion in September 2023.

This increase represents a substantial difference of N1.60 trillion that has left the bank vaults in one year.

On a month-on-month (MoM) basis, currency outside banks rose by 3.8% in September 2024 from N3.87 trillion in August, an increase of N147.9 billion.

The data suggests a rising trend in the public’s preference for holding cash outside the formal banking system, a move that may impact the liquidity available to banks and influence monetary policy dynamics.

93.1% of currency in circulation is outside banks 

The data further indicates that a significant portion of the currency in circulation is being held outside the banking system.

• In September 2024, approximately 93.1% of the total currency in circulation was outside banks, compared to 87.5% in September 2023.
• This trend could be tied to limited trust in banking services, inflationary pressures, or the structural reliance on cash in a largely informal economy.
• With a high percentage of currency outside the banking sector, the economy may face challenges in directing funds into productive channels, potentially limiting growth.
• The report shows a parallel rise in the total currency in circulation, which includes money both within and outside the banking system.
• In September 2024, currency in circulation climbed by 56.1% YoY to reach N4.31 trillion, up from N2.76 trillion in September 2023, reflecting an increase of N1.55 trillion.
• This also means the amount of currency taken outside the banking sector is larger than the amount of currency released for circulation within the one-year period.
• Compared to the previous month, currency in circulation saw a 4.0% MoM increase in September 2024, adding N166.2 billion from August’s figure of N4.14 trillion.

What you should know 

The increase in currency outside banks could signal a lack of confidence in formal banking structures, especially as the Nigerian economy faces inflation and rising living costs.

• The preference for holding cash may also stem from limited access to banking facilities in rural areas, where digital banking infrastructure remains sparse.
• Such a shift could impede financial inclusion efforts, making it difficult for the CBN to achieve a cashless economy.
• The surge in currency outside banks may also complicate the CBN’s monetary policy operations, as high cash reserves outside formal channels could reduce the liquidity available to commercial banks, limiting their ability to lend to businesses and individuals.
• Earlier in September, the CBN announced that it will sanction banks failing to dispense cash through their automated teller machine (ATMs), as part of efforts to ensure sufficient cash in circulation.
• It also disclosed that it would release an additional N1.4 trillion into circulation over the next three months to improve cash flow within the banking system.
• This move was aimed at ensuring sufficient cash availability in ATMs and across bank branches, addressing the challenges of cash insufficiency that many customers have faced.

Nairametrics earlier reported that Nigeria’s money supply (M3) grew by 62.8% year-on-year (YoY) in September 2024, despite the Monetary Policy Committee’s (MPC) tightening stance aimed at curbing excess liquidity to control inflation.

According to the data from the Central Bank of Nigeria (CBN), M3 increased to N108.95 trillion in September 2024, compared to N66.94 trillion in the same month last year.

On a month-over-month (MoM) basis, the money supply rose by 1.6% from N107.19 trillion in August 2024.