Nigerians are holding onto physical currency at record levels, with a striking 94% of the nation’s cash circulating outside the formal banking system.
This revelation comes from the Central Bank of Nigeria (CBN), based on its latest data on Money and Statistics from March 2024.
The numbers indicate a worrying decline in trust in the banking system, potentially threatening the country’s economic stability.
According to the CBN’s data, the amount of physical money (M1) in circulation has soared compared to the previous year.
In January 2024, it reached N3.65 trillion, more than double the N1.39 trillion recorded in January 2023.
The trend continued into March 2024, with physical currency reaching N3.87 trillion, marking a 130% increase year-on-year.
This significant jump suggests the CBN has been injecting more cash into the economy, likely due to the scarcity issues that troubled 2023.
However, the amount of cash held outside the banking system is growing even faster. In January 2024, the sum of money held outside banks was N3.28 trillion, compared to N792.18 billion a year prior. By March 2024, this figure had risen to N3.63 trillion, a 150% increase from the previous year.
This indicates that Nigerians are hoarding cash at a rate that surpasses the CBN’s efforts to maintain circulation.
The cash-hoarding trend can be traced back to the cash scarcity crisis in 2023. The CBN’s mismanagement of a naira redesign policy, aimed at promoting a cashless economy and combating crime, led to significant disruption and eroded public trust in the banking system.
The uncertainty about the validity of old notes and the difficulty in accessing cash fueled the tendency to hoard, which has continued into 2024.
The massive amounts of money held outside formal banking channels create major obstacles. It complicates the smooth flow of money, disrupts liquidity, and weakens the effectiveness of monetary policies. This could lead to higher transaction costs, reduced credit availability, and potentially a slowdown in economic growth.
The CBN has acknowledged these issues, referencing “high volume withdrawals” from banks and “panic withdrawals” by customers. They have cautioned against hoarding cash and even suspended fees on large cash deposits, yet public confidence in banks remains low.
The way forward requires rebuilding trust and addressing the underlying fears that have driven this behavior.
The CBN and the government must collaborate to create a more transparent and reliable financial system that encourages Nigerians to return to formal banking. This is essential to restore economic stability and drive sustainable growth in the country.
