The total currency outside banks in Nigeria rose by a whopping N602.1 billion in the month of March 2023, the highest monthly gain since we started collating data in 2010.
The information is according to data from the Central Bank of Nigeria which shows currency outside banks rose to N1.4 trillion in the month of March compared to N843.3 billion in the month of February 2023.
Currency outside the bank closed at N2.569 trillion before dropping by a whopping N1.77 trillion to N792.1 billion the largest ever monthly drop and the lowest amount of money outside circulation.
However, pushback from some state governors, politicians, critics of the central bank’s new naira notes, and cash withdrawal policies culminated in the Supreme Court extending the deadline for the exchange of the currency to December 31, 2023.
The decision of the Supreme Court to extend the deadline meant the central bank had to rescind its hard stance thus pumping some of the already withdrawn old naira notes into the economy.
Currency outside banks was as high as N2.8 trillion as of October 2022 when the central bank announced the policy introducing new naira notes.
- Recall that on October 26, the CBN governor announced plans by the apex bank to redesign the N200, N500, and N1000 by December 15, 2022, to control the money supply and aid security agencies in tackling illicit financial flow.
- According to the CBN, the existing notes would cease to be regarded as legal tender by January 31, 2023.
- Emefiele said there was significant hoarding of naira notes by members of the public, with statistics showing that over 80% of the currency in circulation was outside the vaults of the commercial banks.
What this means
The increase in currency outside banks essentially sets back the central bank’s plan of controlling the money supply, especially those outside circulation.
- The increase in currency outside circulation suggests the central bank’s decision to rescind new naira notes forced it into pumping some of the old naira notes into the economy leading to its increase.
- How the central bank manages the level of currency outside the bank will determine if this is a temporal challenge. It is also unclear if the central bank has a target benchmark for currency outside banks.
- However, the currency outside banks could fall back to below a trillion when the current old N500 and N1000 notes expire.