Nigeria’s currency in circulation fell to a record low of N982 billion in February 2022 down from N1.39 trillion recorded in January 2023, representing the lowest level since November 2008.
This is according to data obtained from the Central Bank of Nigeria (CBN). The total amount mopped up since the policy to remove old naira notes from circulation is an estimated N2 trillion in two months. The total currency in circulation as of December 2022 was just over N3 trillion.
The decline followed the CBN’s aggressive monetary policy to phase out old currency notes and introduce limited new notes into the economy.
According to the data seen by Nairametrics, currency in circulation reduced by 29% between January and February 2023. The total drop year to date is estimated at 67% or over N2 trillion from the N3 trillion recorded as of the end of December 2022.
Meanwhile, currency outside banks rose to N843.1 billion in February compared to N792.1 billion recorded in January 2023. This was expected as public pressure piled on the central bank to issue more notes through banks.
Nevertheless, the currency outside the banking system is still one of the lowest seen since 2009 when the currency outside banks was below N1 trillion.
CBNs reaction
The CBN monetary policy committee stated in its briefing that the naira redesign and cash withdrawal limit policies “have resulted in a sizeable reduction in Currency-Outside-Banks, indicating an expected improvement in the potency of monetary policy tools.”
The apex bank believes reducing the currency outside banks will help curb the high inflationary trends in currency being experienced by Nigerians.
However, the side effect of this policy has been exacerbated by cash scarcity threatening a slowdown in the country’s gross domestic product and increasing hardship for Nigerians.
The MPC also responded claiming they were “aware of the ongoing challenges associated with the limits imposed on cash withdrawals in the face of frequent downtime in bank electronic transaction channels” but stopped short of increasing the withdrawal limits imposed on bank customers.
The CBN Governor, Godwin Emefiele, during an MPC press briefing in October 2022 noted that the volume of higher denominations in the economy was fuelling the rise in inflationary pressure and that the apex bank was going to gradually reduce the volume of N500 and N1,000 in circulation.
The President, Muhammadu Buhari, also supported this move in February when he extended the use of old N200 notes until April 10th, 2023, while the N500 and N1,000 old notes became obsolete.
The President, however, stated that the naira scarcity suffered by Nigerians was due to unscrupulous banking officials entrusted with the process of implementing the new monetary policy.
Subsequently, the Supreme Court ruled that the apex bank’s policy was illegal extending the period when the old naira notes will no longer be legal tender to December 2023. This triggered a response (albeit delayed) from the presidency and subsequently the central bank instructing banks to start accepting the old naira notes as legal tender.
Optics
The reduction in Nigeria’s currency in circulation following the CBN’s aggressive monetary policy to phase out old currency notes has had both positive and negative effects.
On one hand, it has resulted in a reduction in currency outside banks and an expected improvement in the potency of monetary policy tools.
The government has taken actions to address the issue, but it remains to be seen how effective they will be. It is important for policymakers to balance the need for reducing inflationary pressure with the need to mitigate the negative effects of monetary policy on the general population.
