Currency in circulation hit a 10-month high of N2.99 trillion in October, rising by N236.47 billion or 8.56 per cent from N2.76 trillion in September, latest data released by the Central Bank of Nigeria (CBN) has shown.
New Telegraph’s analysis of the apex bank’s data indicates that since it fell sharply to N982.10 billion at the end of February this year, currency in circulation has generally maintained an upward trend.
Specifically, a breakdown of data obtained from the CBN shows that although currency in circulation, which stood at N3.29 trillion at the end of December 2022, dropped to N1.39 trillion and N982.10 billion in January and February respectively, it rose to N1.68 trillion in March; N2.48 trillion in April; N2.53 trillion in May and N2.60 trillion in June.
Also, although currency in circulation dropped to N2.59 trillion in July, it increased to N2.66 trillion and N2.76 trillion in August and September respectively.
This means that currency in circulation is approaching the high levels that made the CBN to introduce its naira redesign policy in October, last year, as part of efforts to reduce the volume of currency in circulation thus enabling it to fight inflation and ensure naira stability.
According to the International Monetary Fund (IMF), “currency in circulation represents those banknotes and coins that have been produced and issued for use in the economy. Notes and coins held in the central bank’s vault, including notes and coins returned to the central bank by banks, are not considered part of currency in circulation.”
Financial experts believe that the apex bank would have to address rising currency in circulation if it is to tackle surging inflation which rose for the 10th month in a row to hit 27.33 per cent in October.
In a recent report, for instance, analysts at CSL Research said: “The challenge of having a high proportion of currency in circulation outside the banking system has remained since independence despite previous currency redesigns and printing.
“We reiterate however that the objectives of reducing the significant amount of cash outside the banking system to ensure monetary policy effectiveness, curtail criminal activities and promote financial inclusion amongst others are strongly desirable.
Also reducing the amount of cash outside the banking system also helps to curb money laundering activities if the implementation is done in conjunction with agencies like the EFCC and the banks.
“Suspicious transactions can easily be flagged as cash comes in and out of the system. From the numbers we have seen, we can conclude that the naira redesign did not achieve its aim.”
They further stated: “For context, the currency in circulation reduced by 48.97 per cent between October 2022 (when the naira redesign deadline was announced) and March 2023 i.e., from N3.3 trillion to N1.68 trillion.
“However, percentage of currency outside banks to currency in circulation in October 2022 and March 2023 were 86 per cent and 85.86 per cent respectively, a marginal reduction of 0.14 per cent, which suggests the initiative did not really achieve the expected objectives.”
In August, the IMF said that Nigeria’s loose fiscal and monetary policies were creating excess liquidity, making it difficult for the naira to stabilise against the dollar despite foreign exchange reforms introduced by the CBN in June.
The Fund said that the CBN’s transfers to the government were increasing the naira in circulation, depressing interest rates, discouraging savings and deterring the dollar inflows that could boost naira stability.
Indeed, during his confirmation hearing at the Senate on September 26, newly appointed CBN Governor, Mr. Olayemi Cardoso, stated that reliable studies had shown that in the past 10 yesrs to 15 years, at least 50 per cent of inflation had been as a result of money supply and deficit financing.
He said that the way money had gone up in the country, “that itself is behind inflation. It is the problem. It is a big problem. But going forward, we will do everything possible to ensure that deficit financing does not bring problems to us.”
New Telegraph reports that in response to reports in some quarters about scarcity of cash in banks and Automated Teller Machines (ATMs) across the country, the apex bank on November 2, assured members of the public that there is sufficient stock of currency notes for economic activities.
Last Tuesday, the banking industry regulator also said that it had removed the naira redesign policy-induced December 31, 2023 legal tender status deadline of the old design of N200, N500 and N1,000 denominations, adding that the old banknotes will continue to remain legal tender, “ad infinitum.”