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Nigeria’s currency in circulation rises by 93%
Guardian Nigeria
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10/5/2024
Nigeria’s currency in circulation rises by 93%
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News
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00:00
Data by the Central Bank of Nigeria shows that the country's currency in circulation
00:04
rose by 93.3 percent to 4.1 trillion naira, with about 6.6 percent within the banking
00:11
sector.
00:12
Abdulaziz Kuranga, Regional Economist for West Africa Standard Bank Group, joins me
00:16
for this discussion.
00:17
Abdulaziz, thank you for joining us on the show today.
00:20
It's quite interesting, these numbers that are coming out from the CBN, the amount of
00:25
cash in the banking sector and that outside of the banking sector.
00:28
I mean, total currency in circulation, 4.1 trillion, 3.8 trillion of that amount is outside
00:35
of the banking sector, in the hands of individuals, in the hands of businesses, that's 93 percent.
00:40
How did we get here?
00:42
What has triggered this?
00:43
And it's been something that's continued for a while.
00:45
How did we get here?
00:46
Okay.
00:47
First of all, this currency outside the banking system, so it's just the normal cash, and
00:55
they actually printed to be spent for purchasing activities and buying and selling activities.
01:02
And there's really no use printing this, and the people are not using it to transact and
01:07
the likes.
01:08
And if you look at, between 1981 to about 2022, the average currency outside the banking
01:16
system is about 85, 90 percent of the total currency in circulation.
01:22
So this just further underscores that view, that money is being printed just to be spent
01:27
and bought by everybody, in our view.
01:31
So it's really not an issue, and so this is actual cash.
01:35
So sometimes we tend to look at these numbers on a nominal basis, maybe in trillions of
01:40
naira, billions of naira, and you know, all those figures, they are very big.
01:46
However, if you look at it, if you look at it as per historical levels, so it's usually
01:53
around 90, 85 percent, and current level is about 93 percent of currency in circulation.
01:59
So you're saying this is not a problem?
02:00
It's really not a problem.
02:01
So I'm still further justifying that.
02:05
As a percentage of total money supply, historically we used to have about, it used to have about
02:12
6 to 7 percent of total money supply, and currently it's about 3.2 percent of money
02:18
supply.
02:19
So that's really still not an issue.
02:21
And if you also look at it as a percentage of your GDP, so which tells you how much cash
02:28
is actually chasing your productive bees, it's about 2.3 percent, and in this you have
02:35
to compare with other countries of the world, probably Nigerian spares and the likes.
02:40
So for instance, if you take the neighbors here, Ghana, if you take that, as of 2021-2022,
02:47
cash outside the banking system as a percentage of GDP was about 4.1 percent.
02:53
In South Africa it's about 3.5 percent.
02:55
If you look at Kenya, about 2.7 percent, Rwanda, 3.1 percent.
02:59
So Nigeria is even still low.
03:01
So that cash as a percentage of your GDP is even still not enough for your productive
03:06
bees.
03:07
Which is why we were not surprised when the DCBN governor, after that monthly policy meeting
03:13
last week, he was saying that they want to send another 1.4 trillion cash to the banks
03:21
to address this cash challenges that we're having in Nigeria.
03:25
So which just further underscores that view that cash necessarily is not a problem.
03:30
So money supply, to get your money supply, we have the M1, and that M1 is actually your
03:37
demand deposit plus your currency outside the banking system.
03:42
Demand deposit is about 30 percent.
03:45
Currency outside the banking system is about 3.6 percent.
03:48
Then you add that with your quasi money, which are your near money.
03:53
Those are like the biggest challenges with money supply in Nigeria today.
03:57
There was 67 percent of money supply.
03:59
So that your M1 plus your quasi money will be giving you your M2.
04:04
So cash alone is not a problem at all.
04:06
In fact, it is not enough based on historical averages as a percentage of money supply M2
04:12
and also as a percentage of your GDP.
04:14
Because this then threw up questions around where does this leave, where is the CBN's
04:18
cashless drive in all of this?
04:20
I know that the CBN has been trying to get Nigerians to spend less cash, I mean transact
04:25
more with electronic channels and online and not actual cash.
04:30
And of course, bringing more Nigerians into the formal banking system where they actually
04:36
found that it's financial inclusion drive.
04:38
So that's the angle of, okay, how is this impacting when we look at all this cashless
04:43
system?
04:44
Where does this leave the financial inclusion drive, where does this leave the cashless
04:46
drive?
04:47
Are we still on track or is this not a problem for those two initiatives, cashless drive
04:55
and financial inclusion?
04:56
We don't really see that for now as a problem for now.
05:01
Because even when we had that beginning of the cashless drive 2014-2015, so it was still
05:07
around the same levels of, the level of cash is still around the same level of about 6%-5%
05:16
of total cash in circulation.
05:18
You know, of course, as you are moving forward into, as you are going every year, the productive
05:24
base increases.
05:25
And as the productive base is increasing, even actual cash should also be increasing.
05:31
So it's still not up to the productive base and that is when you know that at least you
05:35
are still tilting in line with the cashless drive.
05:39
So is this going to continue?
05:41
Is CBN going to let this continue?
05:43
Can we expect cash in circulation to continue to grow because it has grown significantly
05:48
this year?
05:49
Is this a trend that's going to continue?
05:50
And will the CBN just leave things as they are?
05:53
It's not going to continue.
05:55
For now, the challenge still remains that people are not able to access cash, even as
06:00
we are doing the cashless drive.
06:02
So until once we get to that stage that people are able to access cash and wherever, I don't
06:08
think that it would, I would probably see a reduction in terms of CBN trying to send
06:14
cash to the banking system.
06:16
But for now, based on historical trends, percentage of money supply and how these are actually
06:22
chasing the funding base or the productive base of the economy, even as you are seeing
06:26
it year on year, good and the likes, it's still really not enough for your productive
06:30
base.
06:31
Okay, we'll leave it there.
06:32
Thank you so much, Abdulaziz, for talking to us today and helping us shed more light
06:35
on that.
06:36
Abdulaziz Kuranga, he's a regional economist for West Africa at the Standard Bank Group.
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