Nigeria’s total currency in circulation rose to N5.24 trillion in January 2025, marking a 43.4% year-on-year (YoY) increase from N3.65 trillion recorded in January 2024.
The latest data from the Central Bank of Nigeria (CBN) also revealed that N4.74 trillion, or 90.5% of this total, was outside the banking system, held by individuals and businesses instead of being stored in bank vaults.
Despite the push for digital transactions, cash usage continues to rise, with a steady increase in the volume of money circulating outside formal banking channels.
However, the CBN did not provide figures for December 2024, making it difficult to determine the full extent of cash movement during the peak holiday season.
Rising cash movement in 2024
- Over the past year, both currency in circulation and currency outside banks have increased significantly. In November 2024, the total currency in circulation stood at N4.88 trillion, with N4.65 trillion outside bank vaults, representing 95.4% of the total.
- By June 2024, the figures stood at N4.05 trillion in circulation and N3.79 trillion held outside banks, accounting for 93.9% of the total.
- The absence of December data leaves a crucial gap, especially as the festive season typically drives increased demand for physical cash. With higher spending on travel, celebrations, and informal sector transactions, the proportion of cash outside banks could have surged further.
What this means for the economy
The growing dominance of cash outside the banking system presents multiple challenges for financial institutions and economic policymakers.
With over 90% of total cash held outside banks, deposit mobilization for banks remains weak, affecting their ability to extend credit to businesses and individuals.
Since banks rely on deposits to fund loans and investments, this trend could limit lending activities and economic growth.
Monetary policy effectiveness is also at risk. The CBN uses tools like open market operations and interest rate adjustments to control liquidity and inflation.
However, when most cash remains outside the banking system, these measures become less effective in managing inflation and stabilizing the economy.
The continued preference for cash transactions, despite efforts to promote digital banking, highlights the slow pace of financial inclusion.
Many Nigerians, especially in the informal sector, still rely heavily on cash due to limited access to banking services and POS infrastructure challenges. The persistent reliance on cash could also contribute to inflationary pressures, particularly if excess liquidity in the system is not matched by a corresponding rise in goods and services.
What you should know
- During a press briefing at the end of the 297th Monetary Policy Committee (MPC) meeting, the CBN announced that it would sanction banks failing to dispense cash through their automated teller machine (ATMs), as part of efforts to ensure sufficient cash in circulation.
- The CBN Governor, Olayemi Cardoso, also disclosed that the CBN plans to release an additional N1.4 trillion into circulation over the next three months to improve cash flow within the banking system.
- This move, he said, is aimed at ensuring sufficient cash availability in ATMs and across bank branches, addressing the challenges of cash insufficiency that many customers have faced.
