Currency in circulation increases to N2.53trn in May, says CBN

The Central Bank of Nigeria (CBN) has disclosed that currency in circulation increased by N44.57 billion in May 2023 to N2.53trillion, up from N2.48 trillion in April 2023.

This is an increase of 82.2per cent In Year-till-Date growth from N1.39 trillion CBN reported in January 2023 as the reported figure in May is the highest so far.

The Money and Credit Data for April had revealed that currency in circulation rose by 42 per cent from N1.68 trillion in March to N2.38 trillion in April.

Finding by Westernpost showed that the rise is slowly sprinting to the previous peek of N2.73 trillion outside banks as of September 2022 which was 85 per cent of N3.2 trillion of CIC which initially prompted the CBN to act against hoarding and opted to redesign the naira.

However, at 87.4 per cent now of monies out of the banking system, it has reverted to the previous peek and thus would hamper any monetary policy by the apex bank.

A nine-month breakdown that prompted the naira redesign policy shows that currency in circulation in September 2022 stood at N3.23 trillion; October 2022, N3.29 trillion; November 2022, N3.16 trillion and December 2022, N3.01 trillion.

Others are January 2023, N3.29 trillion; February 2023, N982 billion; March 2023; N1.68 trillion and April 2023, N2,38 trillion.

The Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle attributed the significant increase in May to the spillover effect of the cash crunch and that average Nigerians are hoarding the new notes and are not depositing in the banks because of distrust in electronic banking.

He said: “The increase in currency outside the banking system is something that is expected largely because of how the naira redesign policy was implemented. An average Nigerian recall what we suffered and because it was suspended till December, a lot of people are preparing themselves for what would happen in December and most people are hoarding the new notes.”

Furthermore, analysts at Meristem securities stated: “Despite the CBN’s efforts to mop up excess liquidity in the system, broad money supply (M3) continues to rise, reaching a record high of N54.63trn (4.75 per cent YtD increase) in March 2023. However, the increase was primarily driven by the spike in net foreign assets fueled by higher foreign asset holdings of the CBN and a decline in foreign claims on other depository corporations. Net domestic assets also grew marginally by 1.54 per cent to N48.64trn in the same period.

“We recall that in December 2022, a humongous N2.57trrillion (or 85.29 per cent of the currency in circulation) was outside the banking system. This has historically weakened the effectiveness of inflationary control measures. To curtail this, the CBN introduced the cash swap and Naira redesign policy which immediately lowered the currency outside banks to N792.18bn (or 57.14 per cent) in January 2023. Unsurprisingly, we have observed a reversal in this trend as currency outside banks spiked to N1.45trn, reverting to 85.86 per cent of currency in circulation in March 2023.

“This can be attributed to the reinstatement of the old Naira notes as legal tender until December 2023 by the Supreme court. We expect this increase to persist in the near term as old Naira notes are re-released into circulation, which could pose new threat to the efficacy of monetary policy decisions.”