Currency in circulation reaches N4trn, 56% difference amid surge in cash hoarding with comparison to previous year – CBN

The high rate of cash hoarding is attributed to multiple factors. Public mistrust in the banking system, fears about rising inflation, and a preference for physical cash in daily transactions have all contributed to this trend.

Recent data from the Central Bank of Nigeria (CBN) has unveiled a striking milestone in the nation’s financial landscape. As of June 2024, the currency in circulation (CIC) reached an unprecedented N4.05 trillion, marking a dramatic 56 per cent increase from N2.6 trillion in the same month the previous year. This figure represents the highest level of CIC ever recorded in Nigeria.

The CIC encompasses both the currency held outside the banking system and the vault cash maintained by banks. Notably, this surge represents a 2 per cent month-on-month growth from May 2024, when the CIC was N3.65 trillion.

The data reveals a staggering 94 per cent of the CIC—amounting to N3.79 trillion—is now held outside the banking sector. This marks more than a fourfold increase in the amount of cash held outside banks over the past year. This dramatic rise highlights a significant trend towards cash hoarding, driven by a combination of factors including public skepticism about the banking sector, inflationary pressures, and a widespread preference for cash transactions.

While an increase in CIC may signal robust economic activity and consumer spending, it also carries notable risks. A surge in cash supply can intensify inflationary pressures. Nigeria’s inflation rate, which reached 34.19 per cent in June 2024, up from 22.79 per cent in the same month the previous year, reflects these growingconcerns.

The high rate of cash hoarding is attributed to multiple factors. Public mistrust in the banking system, fears about rising inflation, and a preference for physical cash in daily transactions have all contributed to this trend. The inflation rate has risen sharply, with June 2024’s rate being 11.40 percentage points higher than in June 2023.

On a month-to-month basis, the headline inflation rate climbed to 2.31 per cent in June 2024, a slight increase from May 2024’s rate of 2.14 per cent. If the growth in money supply continues unchecked, it could lead to further inflationary pressures.

Analysts at Coronation Research caution that if this increase in money supply is not counterbalanced by a corresponding rise in production, it could erode purchasing power and exacerbate the cost of living, particularly impacting lower-income households. The current economic conditions underscore the need for careful monetary management to mitigate the adverse effects of rising inflation and ensure economic stability.

Meanwhile, the Central Bank of Nigeria (CBN), yesterday, stated that it will collaborate with the Securities and Exchange Commission (SEC) to implement measures that protect foreign investors from devaluation losses.

This initiative, it said, is part of a broader effort to encourage foreign direct investments (FDIs) and bolster confidence in the Nigerian financial system. Its Governor, Olayemi Cardoso, stated this at the Afrinvest 2024 Nigerian Banking Sector Report Launch themed; Bank Recapitalisation: Catalyst for a $1 trillion Economy? which held in Abuja on Wednesday.

Whilst commending Afrinvest for creating a platform where experts and stakeholders can discuss the financial landscape in Nigeria, Cardoso who was represented by the Acting Director, Financial Policy and Regulation Department, John Onoja, noted that although several banks are currently raising funds through the capital market, the apex bank is providing guidance and reviewing their capital plans.

He explained that the CBN remains conscious of imported capital from foreign investors and assured them that they will not face devaluation losses on their investments, with plans in place to work with the SEC to implement these protections.

“They will be able to go back home with their currency and value at which they brought it into the country. We have taken note of that and we are working with the SEC to ensure that that is done”, Cardoso stated.

The CBN Governor also revealed that it is collaborating with other financial institutions, including the Nigeria Deposit Insurance Corporation (NDIC), SEC, Nigerian Exchange Limited (NGX), fiscal authorities, and the National Assembly, to ensure proper oversight while adding that only qualified individuals participate in the ongoing recapitalization exercise.

He said, “We will vigorously enforce our fit and proper person criteria for new shareholders, board members, senior management to ensure that there are no illicit funds that will flow into the system”.

Whilst stating that the apex bank is committed to supporting investments in Nigeria, with an emphasis on creating an inclusive economic growth environment, Cardoso said, “Between 2010 and 2015, records have shown that investments in bank shares yielded an average of 17 per cent per annum and so the recapitalization exercise of the banking sector is a pivotal strategy aimed at strengthening the resilience of the Nigerian banks and promoting sound financial system in Nigeria and support the government’s goal of achieving the $1 trillion economy by 2030.

So, we are glad that the recapitalization drive has already attracted foreign direct investments (FDIs) and improved foreign exchange liquidity as well as boosted sectors in the economy already”.

He further clarified that the recapitalization exercise for Nigerian banks, announced last year, was not unexpected as the banks were given advance notice.

According to him, the recapitalization exercise is designed to strengthen the banking sector’s capacity to absorb economic shocks and enhance their lending abilities.