Currency in circulation hits N4tr, defies CBN’s monetary tightening measures

The amount of currency in circulation surged to an unprecedented N4.05 trillion in July 2024, marking an all-time high, data from the Central Bank of Nigeria (CBN) has revealed.

The CBN’s Money and Credit Data report, which disclosed this figure, said it represented an 11.05 per cent increase since the beginning of the year and a significant 56.17 per cent rise compared to the same period in 2023.

The apex bank has since the beginning of the year maintained a tight monetary policy regime aimed at slowing the galloping inflation, which it believes is driven by excess money in circulation.

Analysis of the data revealed that the year began with N3.65 trillion in circulation in January 2024, a stable figure reflecting a typical post-holiday economic environment.

February saw a modest rise to N3.69 trillion, a 1.18 per cent increase from January, while March recorded a more substantial jump to N3.87 trillion, marking a 4.76 per cent month-on-month increase. The upward trend persisted in April, with the currency in circulation hitting N3.92 trillion, up by 1.39 per cent from March, driven by heightened consumer spending during the Easter period.

May and June continued this trajectory, with the currency in circulation reaching N3.97 trillion in May and peaking at N4.04 trillion in June, representing monthly increases of 1.07 per cent and 2.11 per cent, respectively.

Experts have attributed this trend to a growing lack of confidence in the banking system, “as more Nigerians opt for cash transactions amid economic uncertainty. This shift was particularly notable since September 2023, when Olayemi Cardoso assumed office as CBN Governor, with currency in circulation then standing at N2.76 trillion.”

Meanwhile, despite this surge in currency circulation, Nigeria’s economic growth remains sluggish, with a projected growth rate of 2.9 per cent to 3.1 per cent for 2024, among the slowest in West Africa.

Inflation, however, continues to be a pressing concern, with the headline inflation rate climbing to 33.40 per cent in July 2024, up from 29.9 per cent in January, according to the NBS.

In response, the CBN’s Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) to a record 26.75 per cent to curb inflation and stabilise the economy. This move underscores the CBN’s commitment to aggressive monetary tightening amidst ongoing economic challenges.

Analysts suggested that the spike in currency circulation may be indicative of increased government spending aimed at mitigating the hardships faced by Nigerians.

“However, this influx of money into the economy has also fueled inflationary pressures,” they said. Speaking on the increasing currency in circulation, a fiscal governance expert and Lead Director, Centre for Social Justice (CSJ), Eze Onyekpere, said it is left for the Central Bank of Nigeria as the only authorised issuer of the Naira to explain the magic of increasing currency in circulation if it is not the authority issuing more currency.

He said the incentives for Nigerians to put their money in the banking system are not encouraging as the deposit rates are peanuts compared to the lending rates and the inflation rate.

He explained: “While the lending rates of different banks are comparable with the inflation rate and still give room for the banks to make a stupendous profit, deposit rates lead to the depreciation of any money kept in the bank,” he said.

“Further, the kind of CBN policy oversight that led to the recent revocation of the license of Heritage Bank cannot be an encouragement for people to put their money in the banks. It is a clarion call for Nigerians especially, the poor, who do not trust the elite consensus that is heavily weighed against the poor to vote with their feet. What was the regulatory agency doing to have allowed the toxic situation in Heritage Bank to build up to the crescendo of total collapse? There are more questions than answers.”