The Central Bank of Nigeria (CBN) has stated that broad money supply (M3) in the Nigerian economy rose further to 13.77% in December 2021, compared to 10.10% in November 2021.
This was disclosed in the Central Bank of Nigeria’s Communiqué No. 140 of the Monetary Policy Committee meeting held on Monday 24th and Tuesday 25th January 2022.
Broad money (M3) refers to the amount of money in circulation in a given economy. It is regarded as the most comprehensive method of determining a country’s money supply, as it includes both narrow money and other assets that may be quickly turned into cash for the purchase of goods and services.
What the CBN is saying about money supply
The monetary theory of inflation claims that inflation is caused by an increase in the money supply. Consequently, Nigeria witnessed an uptick in inflation during the period examined. Headline inflation (year-on-year) grew to 15.63% in December 2021 from 15.40% in November, following seven months of reduction.
The CBN said, “Reviewing the developments in monetary aggregates, the Committee noted that broad money supply (M3) rose further to 13.77 per cent in December 2021, compared with 10.10 per cent in November 2021.”
The CBN linked the surge in money supply to a growth in assets, which is a fundamental component in money supply.
The CBN said, “This upthrust was largely driven by the growth in Net Domestic Assets (NDA) of 15.58% in December 2021, compared with 9.40 per cent in November 2021.“
“The sharp growth in Net Domestic Assets (NDA) was largely attributed to an increase in claims on the Federal government and other sectors. The slowdown in growth of Net Foreign Assets (NFA) resulted from a decrease in foreign assets holdings of the banking system in favour of more domestic investments,” the CBN added
On the other hand, Net Foreign Assets (NFA) decreased to 6.06% in December 2021, compared to 14.98% in November 2021.