Experts Blame Hoarding as Currency Outside Banks Rise to N2.34trn in April

According to thisdaylive.com, currency outside the banks has spiked for the fourth consecutive month to N2.08 trillion in April 2023, about 87.43 percent of total currency in circulation (CIC) that closed that month under review at N2.38 trillion.

The Money and Credit Data for April released by the Central Bank of Nigeria (CBN) showed that currency-in-circulation rose by 42 percent from N1.68 trillion in March to N2.38 trillion in April.

THISDAY checks revealed that the rise is slowly sprinting to the prehistoric peek of N2.73 trillion of currency outside banks as of September 2022, which was 85 percent of N3.2 trillion of CIC

This was what prompted the CBN to act against this hoarding and opted to redesign the naira.

A nine-month breakdown that prompted the naira redesign policy showed an N3.23 trillion currency in circulation in September 2022, N3.29 trillion in October 2022,  November 2022, N3.16 trillion, and in December 2022, N3.01 trillion. In January 2023, the currency in circulation was N3.29 trillion, February 2023, N982 billion, March 2023, N1.68 trillion, and April 2023, N2,38 trillion.

Also, the nine-month breakdown of currency outside the banks reveals that the month of September was N2.72 trillion October N2.83 trillion November N2.65 trillion and December N2.57, While January recorded its lowest at N792 billion, February N843 billion, and in March N1.45 trillion and April N2.07 trillion.

Experts said the spike is vast because of the spillover effect of the cash crunch adding that average Nigerians are hoarding the new notes and are not depositing in the banks because of distrust in electronic banking.

“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, ”said Head, of Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi.

Also, he noted that because Nigeria just concluded an election, there are a lot of funds still circulating in the economy and that confidence in electronic banking has not returned to pre-policy.

Furthermore, he added that with a new administration coming in, the uncertainty of the naira redesign implementation and its effect on currency in circulation should be closely monitored.

He added: “The policy If you look at the context of Nigeria, December is a long period, and next week we would have a new president and the new president would have a new finance team which would determine what would happen in the long run. The currency redesign needs the consent of the presidency so the input of the next president would be very important to know how we are going to proceed with this monetary policy.”

Also, 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 N54.63trillion (4.75 percent YtD increase) in March 2023. However, the increase was primarily driven by the spike in net foreign assets fuelled 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 percent to N48.64 trillion in the same period.

“We recall that in December 2022, a humongous N2.57 trillion (or 85.29 percent 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 N792.18 billion (or 57.14 percent) in January 2023. Unsurprisingly, we have observed a reversal in this trend as currency outside banks spiked to N1.45 trillion, reverting to 85.86 percent 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 a new threat to the efficacy of monetary policy decisions,” they stated.