CEM REPORT, FINANCE| Cash is king in Nigeria, and it seems Nigerians are clinging to their crowns tighter than ever. Recent data from the Central Bank of Nigeria (CBN) paints a concerning picture: Nigerians are holding onto cash at an alarming rate. By March 2024, a staggering 94% of the country’s currency in circulation, ₦3.63 trillion out of ₦3.87 trillion, resided outside the banking system.
This trend represents a significant rise from January 2024, when the figure stood at 90%, and reflects a growing lack of confidence in the banking system or a preference for cash transactions.
Surge in Cash Circulation
The first quarter of 2024 witnessed a dramatic increase in the total amount of currency in circulation compared to the same period in 2023.
In January 2023, the figure stood at ₦1.39 trillion, but by January 2024, it had more than doubled to ₦3.65 trillion. This trend continued throughout the quarter, with February recording ₦982.1 billion in 2023 compared to ₦3.69 trillion in 2024.
March’s figures reached ₦3.87 trillion, a 130% increase from the ₦1.68 trillion recorded in March 2023. This significant rise suggests the CBN has released a substantial amount of cash to address the scarcity issues created by the 2023 naira redesign policy.
Cash Outside Banks
However, the data reveals a troubling discrepancy. While the CBN has increased cash circulation, the amount held outside banks has grown even faster.
In January 2023, ₦792.18 billion was reported outside the banking system. By January 2024, that figure had ballooned to ₦3.28 trillion. This trend continued in February, with ₦843.31 billion in 2023 rising to ₦3.41 trillion in 2024.
March’s figures are most alarming. The amount held outside banks in March 2024 reached a staggering ₦3.63 trillion, a 150% increase from the ₦1.45 trillion reported in March 2023. This indicates that Nigerians are hoarding cash at a rate exceeding the CBN’s efforts to increase overall circulation.
A Loss of Trust and Economic Implications
The cash scarcity of 2023 eroded public trust in the banking system. People became reluctant to deposit their money in banks, fostering a habit of cash hoarding that has continued into 2024. With 94% of currency now kept outside banks, this behavior reflects a persistent skepticism towards both the banking system and the government’s economic policies.
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The hoarding of such large amounts of cash outside the formal banking sector poses significant challenges. It restricts the effective circulation of money, impacting liquidity and hindering the CBN’s ability to regulate the economy through monetary policy. This, in turn, could lead to higher transaction costs, reduced credit availability, and ultimately, a slowdown in economic activity.
If You Ask Me
The CBN and Nigerian government must now work towards restoring public trust in the banking system. This can be achieved through improved transparency, communication, and ensuring efficient cash distribution across the country. Additionally, promoting financial inclusion initiatives that encourage Nigerians to use formal financial channels is crucial.
Addressing the cash hoarding challenge requires a multi-pronged approach. The CBN needs to analyze the reasons behind people’s preference for cash and tailor its policies accordingly. Furthermore, promoting financial literacy campaigns can educate Nigerians on the benefits of using the banking system and the security it offers.
Perhaps, the NDIC has move to restore confidence in it latest increase in insurance safety net for depositors. However, Nigerian already don’t trust the system especially not insurance.
However, by working together, the CBN, government, and financial institutions can overcome this challenge and steer the Nigerian economy towards a more stable and cashless future.
