Currency outside banks, which represents the total currency in the hands of the public, fell to a record low of N788.92 billion in January 2023 according to data from the Central Bank of Nigeria.
The apex bank was able to mop up N1.78 trillion from the hands of the public with its monetary policies, reducing the currency outside the vaults of the banking system from N2.57 trillion recorded as of December 2022 to N788.92 billion.
Analysts at Nairametrics confirmed that this is the lowest level recorded since December 2015.
In a similar development, the total currency in circulation, which adds to the legal tender in the vaults of the Deposit Money Banks, fell sharply to N1.39 trillion in the same period.
Reason for the decline: The huge decline is attributable to a string of policy implementations by the CBN in a bid to combat the rising rate of inflation in the country. Specifically, after raising the benchmark interest rate by a cumulative 500 basis points in 2022 with no changes in the inflation numbers, the Bankers Bank announced the redesigning of higher denomination naira notes.
- Notably, CBN Governor Godwin Emefiele had in October last year announced the redesigning of N200, N500, and N1,000 notes, with a deadline of 31st January 2023 for the phasing-out of old notes.
- In a bid to avoid losing their monies, Nigerians deposited most of their old notes, which allowed the CBN to moderate the amount of money that returned into the economy, by reducing the minimum over-the-counter cash withdrawal, as well as reducing the maximum denomination for ATM withdrawal.
- Meanwhile, these actions by the CBN elicited excruciating naira shortages and panic, considering the importance that cash plays in the Nigerian economy. These were followed by long queues in banking halls, high charges by POS agents, and the destruction of bank properties, which was further escalated by the recurrent downtime in banking applications.
The CBN policy: The naira redesign policy of the CBN was aimed at reducing the amount of excess liquidity in the economy, which has been identified as one of the factors fuelling the rising rate of inflation in the country.
- Since 2019, Nigeria’s currency in circulation had been on a continuous rise, surging from N2.33 trillion as of December 2018 to over N3 trillion in 2022, which was largely due to increased intervention by the apex bank to douse the effect of the covid-19 pandemic.
- Also, the policy was targeted at naira notes gotten through illegal means or stashed for the sake of vote buying in the 2023 elections. According to the CBN Godwin, the policy could solve many problems in the monetary, political, and fiscal areas of the Nigerian economy.
- In the same vein, the naira redesign policy is aimed at increasing financial inclusion in the country, and encouraging the adoption of the cashless policy, which saw mobile transaction surge by 125% year on year in January 2023.
- Other forms of internet transactions like POS and NIP also recorded notable increases compared to previous years.
The plan going forward: Meanwhile, the CBN will seek to further bring down the numbers in the coming months, in other to achieve an effective cashless policy, where Nigerians will require less cash for their daily transactions and rely on alternative forms of payments.
Although, it is worth noting that the banking systems are not yet at full capacity to accommodate the influx of transactions that will come their way as a result of the cash scarcity, hence, a need to improve.
The CBN will also hope that the drop in currency notes in the economy will help make the monetary policy tools more effective in fighting inflation, which had hit a fresh 17-year high in January 2023 after raising MPR by a cumulative 600 basis points.
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