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Currency in Circulation Declines as Money Supply Increases


CEM REPORT, FINANCE | Currency in circulation declined month-on-month to ₦2.59 trillion in July 2023 from ₦2.6 trillion in June 2023.

Currency outside banks also fell slightly from ₦2.26 trillion in June to ₦2.20 trillion in the month under review.

Although money supply in the country increased to ₦64.9 trillion in the month of July, from ₦64.3 trillion in June.


This is according to the latest data released captured in the Central Bank of Nigeria (CBN) money and credit statistics.

The decline in currency in circulation can be attributed to the increasing use of electronic payment channels since the cash crunch which has led to the reduced demand for cash, coupled with CBN’s efforts to mop up excess liquidity in the system.

Analysis of the data reveals that currency in circulation which is the amount of cash and coins outside the banking system, reduced by 48.97 per cent between October 2022 when the Naira redesign deadline was announced and March 2023 from ₦3.3trn to ₦1.68trn.

However, the percentage of currency outside banks to currency in circulation in October 2022 and March 2023 stood at 86 per cent and 85.86 per cent respectively, a marginal reduction of 0.14 per cent.

Between January and June 2023, currency in circulation has risen by 87.77 per cent (₦1.22trn) while currency outside banks jumped by 185.67 cent (₦1.47trn). This is however due to the reinjection of some old naira notes previously mopped up by the CBN into the banking system.

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For money supply identified as M2, data captured reveals that components of the money supply, including demand deposits, quasi-money, and currency outside banks, witnessed growth.

Specifically, quasi-money, which pertains to financial tools that can be easily converted to cash, surged by ₦905.8 billion for the month.

However, demand deposits, primarily made up of chequing accounts or funds in banks accessible without prior notice, fell by ₦283.7 billion.

Moreover, currency outside banks observed a relatively modest increment of ₦54 billion.

M2 captures the total amount of money available in the economy at a particular moment. This includes physical currency such as coins and banknotes, in addition to various types of deposits maintained by individuals, enterprises, and institutions in banks and other financial entities.

M3 which incorporates the aggregate of net domestic assets and net foreign assets, also exhibited growth from June to July.

The M3 for July 2023 stood at ₦65.4 trillion, a slight increase compared to the M2 at ₦64.9 trillion.

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