Nigeria’s currency in circulation rises by 93%
Nigeria’s currency in circulation rises by 93%
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00:00Data by the Central Bank of Nigeria shows that the country's currency in circulation
00:04rose by 93.3 percent to 4.1 trillion naira, with about 6.6 percent within the banking
00:11sector.
00:12Abdulaziz Kuranga, Regional Economist for West Africa Standard Bank Group, joins me
00:16for this discussion.
00:17Abdulaziz, thank you for joining us on the show today.
00:20It's quite interesting, these numbers that are coming out from the CBN, the amount of
00:25cash in the banking sector and that outside of the banking sector.
00:28I mean, total currency in circulation, 4.1 trillion, 3.8 trillion of that amount is outside
00:35of the banking sector, in the hands of individuals, in the hands of businesses, that's 93 percent.
00:40How did we get here?
00:42What has triggered this?
00:43And it's been something that's continued for a while.
00:45How did we get here?
00:46Okay.
00:47First of all, this currency outside the banking system, so it's just the normal cash, and
00:55they actually printed to be spent for purchasing activities and buying and selling activities.
01:02And there's really no use printing this, and the people are not using it to transact and
01:07the likes.
01:08And if you look at, between 1981 to about 2022, the average currency outside the banking
01:16system is about 85, 90 percent of the total currency in circulation.
01:22So this just further underscores that view, that money is being printed just to be spent
01:27and bought by everybody, in our view.
01:31So it's really not an issue, and so this is actual cash.
01:35So sometimes we tend to look at these numbers on a nominal basis, maybe in trillions of
01:40naira, billions of naira, and you know, all those figures, they are very big.
01:46However, if you look at it, if you look at it as per historical levels, so it's usually
01:53around 90, 85 percent, and current level is about 93 percent of currency in circulation.
01:59So you're saying this is not a problem?
02:00It's really not a problem.
02:01So I'm still further justifying that.
02:05As a percentage of total money supply, historically we used to have about, it used to have about
02:126 to 7 percent of total money supply, and currently it's about 3.2 percent of money
02:18supply.
02:19So that's really still not an issue.
02:21And if you also look at it as a percentage of your GDP, so which tells you how much cash
02:28is actually chasing your productive bees, it's about 2.3 percent, and in this you have
02:35to compare with other countries of the world, probably Nigerian spares and the likes.
02:40So for instance, if you take the neighbors here, Ghana, if you take that, as of 2021-2022,
02:47cash outside the banking system as a percentage of GDP was about 4.1 percent.
02:53In South Africa it's about 3.5 percent.
02:55If you look at Kenya, about 2.7 percent, Rwanda, 3.1 percent.
02:59So Nigeria is even still low.
03:01So that cash as a percentage of your GDP is even still not enough for your productive
03:06bees.
03:07Which is why we were not surprised when the DCBN governor, after that monthly policy meeting
03:13last week, he was saying that they want to send another 1.4 trillion cash to the banks
03:21to address this cash challenges that we're having in Nigeria.
03:25So which just further underscores that view that cash necessarily is not a problem.
03:30So money supply, to get your money supply, we have the M1, and that M1 is actually your
03:37demand deposit plus your currency outside the banking system.
03:42Demand deposit is about 30 percent.
03:45Currency outside the banking system is about 3.6 percent.
03:48Then you add that with your quasi money, which are your near money.
03:53Those are like the biggest challenges with money supply in Nigeria today.
03:57There was 67 percent of money supply.
03:59So that your M1 plus your quasi money will be giving you your M2.
04:04So cash alone is not a problem at all.
04:06In fact, it is not enough based on historical averages as a percentage of money supply M2
04:12and also as a percentage of your GDP.
04:14Because this then threw up questions around where does this leave, where is the CBN's
04:18cashless drive in all of this?
04:20I know that the CBN has been trying to get Nigerians to spend less cash, I mean transact
04:25more with electronic channels and online and not actual cash.
04:30And of course, bringing more Nigerians into the formal banking system where they actually
04:36found that it's financial inclusion drive.
04:38So that's the angle of, okay, how is this impacting when we look at all this cashless
04:43system?
04:44Where does this leave the financial inclusion drive, where does this leave the cashless
04:46drive?
04:47Are we still on track or is this not a problem for those two initiatives, cashless drive
04:55and financial inclusion?
04:56We don't really see that for now as a problem for now.
05:01Because even when we had that beginning of the cashless drive 2014-2015, so it was still
05:07around the same levels of, the level of cash is still around the same level of about 6%-5%
05:16of total cash in circulation.
05:18You know, of course, as you are moving forward into, as you are going every year, the productive
05:24base increases.
05:25And as the productive base is increasing, even actual cash should also be increasing.
05:31So it's still not up to the productive base and that is when you know that at least you
05:35are still tilting in line with the cashless drive.
05:39So is this going to continue?
05:41Is CBN going to let this continue?
05:43Can we expect cash in circulation to continue to grow because it has grown significantly
05:48this year?
05:49Is this a trend that's going to continue?
05:50And will the CBN just leave things as they are?
05:53It's not going to continue.
05:55For now, the challenge still remains that people are not able to access cash, even as
06:00we are doing the cashless drive.
06:02So until once we get to that stage that people are able to access cash and wherever, I don't
06:08think that it would, I would probably see a reduction in terms of CBN trying to send
06:14cash to the banking system.
06:16But for now, based on historical trends, percentage of money supply and how these are actually
06:22chasing the funding base or the productive base of the economy, even as you are seeing
06:26it year on year, good and the likes, it's still really not enough for your productive
06:30base.
06:31Okay, we'll leave it there.
06:32Thank you so much, Abdulaziz, for talking to us today and helping us shed more light
06:35on that.
06:36Abdulaziz Kuranga, he's a regional economist for West Africa at the Standard Bank Group.